A Deloitte webcast poll suggests new revenue recognition accounting requirements taking effect next year may put a chill on initial public offerings.

In an online poll of nearly 3,000 executives, mostly with private companies considering IPOs, Deloitte found only a tiny fraction of companies would be ready to comply with the new accounting requirements in 2018. Only 8 percent said their companies had completed implementation of the revenue recognition standard, which is required for all public companies beginning Jan. 1, 2018. In fact, more than 60 percent of the IPO candidates in the Deloitte poll said they had not yet started to implement the new standard or were still performing initial assessments.

The JOBS Act specifically gives smaller emerging growth companies going through an IPO some reprieve on meeting accounting adoption time lines for public companies, allowing them to follow effective dates for private companies. That would give such companies until 2019, the effective date for private companies, to adopt the new standard.

Despite that allowance, Deloitte says, many companies going through an IPO typically strive to comply with public company accounting requirements at the time of their offerings so they put their financial statements on equal footing with comparable public company counterparts. "The gap in deadlines and the slow pace of implementation at many private companies could portend a further slowdown in the IPO market in 2018 as companies scramble to implement the new revenue standard," said Bernie De Jager, a partner at Deloitte & Touche.

A majority of poll respondents believe IPO activity will increase modestly or substantially over the next 12 months, Deloitte says. Half of those respondents believe the bulk of that activity will arise among technology, media, and telecommunications companies.

Interestingly, that’s the same set of industry sectors that have seen the steepest uphill climb to comply with the new accounting, says De Jager. The often complex sales arrangements in such sectors make compliance with the new accounting standard heavily reliant on tricky professional judgments, which necessitates plenty of internal controls. 

Heather Gates, national managing director at Deloitte & Touche, said the poll results suggest some companies may be “overly optimistic” about how quickly they can get up and running under the new standard. “Only one in five respondents thought six months or less was sufficient to put in place the structural and operational changes necessary for an IPO,” she said. “Companies need to begin readying their accounting, tax, financial, legal, business, and systems preparations as early as possible before going public to ensure that they are able to maximize the IPO opportunity."