The Financial Accounting Standards Board plans to consider in early 2015 whether to give companies more time to adopt the massive new standard on revenue recognition.
At a recent meeting of the Transition Resource Group, FASB Vice-Chairman Jim Kroeker said the board has already received “a number of requests,” both written and through direct interactions, to consider deferring the 2017 effective date of Accounting Standards Update No. 2014-09. A group of staff and board members have initiated a process of outreach and site visits to companies of different sizes and in different industries, both public and private, to assess readiness to adopt the standard, he said.
FASB and the International Accounting Standards Board adopted the new revenue recognition standard in late May to require companies to follow a new five-step process for determining the proper amount and timing of revenue recognition, along with extensive new disclosures. Public companies are required to adopt the new standard for interim and annual periods that begin after Dec. 15, 2016, so it takes effect in early 2017 for calendar-year companies.
As companies are required to show three years worth of comparative data in financial statements, that means companies should be prepared to begin applying the new rules to their business activity in 2015 so they are collecting the data necessary to begin reporting it in 2017. The Securities and Exchange Commission has already indicated it will set aside its requirement for five years worth of figures in the table of selected financial data.
Kroeker said not all the feedback the board has heard to date has called for a deferral. “Some tell us they don’t actually think a deferral is warranted,” he said. “We’ve also heard feedback, more third hand, that some have not even begun the process of adoption.” The outreach process will culminate with a board determination “no later than early second quarter,” he said. Board members “would make an evaluation of whether -- and I do say whether -- anything needs to be done to consider a modification to the final effective date.” If the board were to take action at that point, it would be a proposal issued for public comment before any final decision, he said.
Indicating little sympathy for delayed action on implementation, Kroeker said companies would be wise to ask for deferral only after they’ve made a good faith effort to prepare for adoption. “If, as at least one board member fears, the majority of folks have not begun a process of adoption, that won’t be a good fact pattern in my mind in terms of saying a deferral is warranted,” he said. “To those who haven’t begun a process of adopting and you’re asking, get started so we can actually have data to understand what the application challenges are in transition.”
The joint Transition Resource Group is not directly exploring whether the effective date should be delayed, but has cataloged 27 other implementation issues that have been brought to its attention. The TRG is working through each issue to determine if it should recommend any action to the FASB and/or IASB to ease implementation. Kroeker said FASB would share the results of its outreach for the IASB in case it wants to consider any similar action.