In a year-end gut check session to compare notes on their final preparations for the new revenue recognition rules, accounting leaders concluded companies will have to be vigilant in fulfilling various disclosure obligations as they transition to the new accounting.

A revenue recognition working group of the Financial Executives International’s Committee on Corporate Reporting discussed some of the challenges many companies are experiencing as they transition to the new accounting under Accounting Standards Codification 606, especially in assuring they can properly disclose remaining unsatisfied performance obligations. Companies reported to the group anecdotally that they were still working through how to capture the amount and nature of information needed to prepare the disclosure, which is meant to give investors some indication of the company’s performance obligations that must be satisfied in future periods.

For companies that report on a calendar year-end basis, which is the majority of public companies, the ASC 606 took effect Jan. 1 after more than three years of preparation. Companies reporting their 2017 year-end results will be expected to provide plenty of detail about how the company will be affected by the adoption of the new rules, as first-quarter 2018 reports will be presented under the new accounting.

The group identified pitfalls companies may notice if they decide to adopt a practical expedient provided in the new standard with respect to the disclosure of remaining performance obligations that have an expected duration of a year or less. While companies may at first see a benefit to bypassing the disclosure for such remaining performance obligations, it creates the added burden of sorting through which contracts are eligible for the expedient and which are not. Companies also sorted through challenges in operationalizing the disclosure, including benchmarking practices, estimates that must be developed, and systems issues.

According to the FEI summary of the December meeting, the group discussed some of the steps companies should assure they take to communicate with investors, including engaging investor relations staff. Disclosures of backlog, which is a term that has a distinct meaning in the manufacturing sector, need to assure investors are not confused by how the term is used in the context of the new revenue standard. Clear messaging will be key, the group agreed.

The working group also reviewed comment letters the Securities and Exchange Commission had already issued to a handful of companies that elected to adopt the standard earlier than it was required. Those comment letters focused on issues such as the accounting for variable consideration and rebates, disclosures regarding the nature of changes in contract balances, methods used to recognize revenue over time, capitalization of costs to obtain a contract, and the amortization period for commissions. The SEC has also commented on disclosures regarding unsatisfied performance obligations, the group noted.