Companies Not Prepared for New Revenue Recognition Standards

A new survey conducted by PwC US and Financial Executives Research Foundation (FERF), “2016 Revenue recognition survey: Readiness update, impacts and remaining challenges” has revealed that despite the 2018 deadline, firms are still assessing how best to tackle the new revenue recognition implementation.

“Our survey showed that while 78 percent of companies have at least started analyzing the impact of the new standard, the vast majority haven’t completed their assessment. In fact 22 percent of respondents haven’t even started their assessments, which delays the next, and often more challenging, steps toward implementation,” says Dusty Stallings, Capital Markets and Accounting Advisory Services partner for PwC. “While most companies don’t expect the new rules to have a material impact on their income statements, many of them that are currently performing their impact assessments have found more changes than they initially anticipated. With revenue being one of the most important financial metrics for companies, we believe that most companies should expect to see some level of impact.”

More than 700 executives representing companies of all sizes across a wide range of industries participated in the survey, with 55 percent consisting of those from organizations with $1 billion or more in revenue. Key findings based on the survey results include:

A majority of companies have not chosen an adoption method. Fifty-two percent of respondents haven’t yet decided which adoption method they will choose. Given the pros and cons of full retrospective versus modified, this dilemma is understandable. The interests of key stakeholders need to be weighed against the time and effort that may be necessary under either model and whether enough time remains to adopt a modified retrospective method.
Internal resources may be strained. Looking at staffing and costs, 63 percent of respondents plan to utilize internal resources to support the implementation of the new standards and only 18 percent plan to hire consultants at this juncture. However, given that many companies have not yet completed their impact assessments, it may be difficult to determine if that number will change in the face of complex changes to systems and controls.
Firms view implementation cost as significant, not outrageous. From a cost perspective, 58 percent see incremental expenses in the range of $500,000 to implement the new revenue recognition rules, while only ten percent see incremental costs rising above $1 million. These figures may increase significantly, however, if there is a need for significant systems, process and controls changes.

“It’s encouraging that companies recognize the significance of the implementation challenge, and more are taking active steps to prepare for the adoption date,” says Andrej Suskavcevic, President and CEO of Financial Executives International and Financial Executives Research Foundation. “The companies that haven’t started to assess the impact, however, need to do so rapidly to meet the adoption deadline for revenue recognition while also implementing the new lease accounting standard.”

For a copy of the full survey report, click here: “2016 Revenue recognition survey: Readiness update, impacts and remaining challenges”