Revenue recognition: 3 areas of focus for 2018
With 2018 upon us and the extraordinary effort we’ve put in to get us past the public company deadline for the new revenue recognition standards, I’d like to highlight three longer-term considerations for companies to keep in mind as they continue to report and operate under the new rules.
● Backing off from “brute force”: For some companies, meeting the compliance deadline necessitated “brute force.” This strategy generally involved an accelerated manual approach, combining manual processes with enabling technology and tools. If this sounds familiar, now is a good time to ensure your brute force work-arounds don’t become a permanent Band-Aid. Consider automating as much as possible as soon as possible. Doing so both reduces the risk of human error and saves your talent for more strategic concerns. While brute force may have been a necessary means to the compliance end, it is not a long-term solution.
● Balancing revenue recognition and leasing implementation: With much work remaining to implement revenue recognition comprehensively and sustainably, public companies are also hurrying to implement leasing standards. It’s tricky to balance remaining revenue recognition priorities against the Dec. 15, 2018, effective date for the leasing standards. Although kicking any additional revenue recognition adjustments farther down the road is tempting, it’s important to keep any temporary, higher-risk fixes from becoming permanent. The more your organization gets accustomed to the status quo, the harder it becomes to convince others to devote the resources to changing it. Additionally, keep in mind that scoping lessor activities and revenue recognition timing issues can be very challenging and require numerous disclosures. Setting aside the resources to devote to these endeavors will be important.
● The path forward for private companies: Private companies are now in the same position that public companies were a year ago, as they look ahead to their 2019 compliance deadlines. Despite less burdensome disclosure requirements, private companies also generally have smaller accounting functions than their public counterparts. This means that revenue recognition compliance could be an even heavier lift, particularly for private companies that plan to take on implementation themselves.
Building on lessons learned in the public context will be helpful. For starters, implementing a sustainable process from the get-go is the best-case scenario. Keep brute force and Band-Aids as a last resort. Also, take the time to engage with peer companies, including sharing best practices, hearing how others have tackled challenges, and more. Private companies may have a harder time finding peers with comparable experiences, but they can advantage of available resources like industry forums and webcasts.
Keep revenue recognition high on your priority list this year. The investment in long-term sustainable processes remains an important one, even past the compliance deadline.
With 2019 also looming ahead, non-public companies should also start determining their next steps to comply with the revenue recognition deadline. Register and tune into PwC’s webcast on February 20 to learn more.