Audit Analytics is predicting companies will disclose an increased number of accounting failures in 2018 after the adoption of new rules on revenue recognition.

“While it may be early to say, our review of SEC filings provides a strong indication that we will see an uptick in revenue recognition accounting failures,” writes Olga Usvyatsky, a staff member at the research firm.

Audit Analytics has been performing quarterly analyses of corporate disclosures with respect to the adoption of the new revenue recognition standard, Accounting Standards Codification Topic 606, which took effect for public companies on Jan. 1, 2018. Companies heard plenty of warnings in 2016 and 2017 from the Securities and Exchange Commission to assure they were complying with SEC Staff Accounting Bulletin No. 74, which requires companies to disclose the expected effects of adopting new accounting pronouncements.

Based on its review of second-quarter filings, the firm noted some companies began indicating they were having difficulties with the adoption of ASC 606. Now in its assessment of third-quarter filings, Audit Analytics finds companies are starting to disclose material weaknesses that they attribute directly to the lack of progress in preparing to adopt the new rules.

ICTV Brands, for example, disclosed a material weakness related to its failure to “substantially or timely commence” an evaluation of ASC 606 and its effect on the company’s financial statements. “Without having substantially evaluated the impact of the new standard on its consolidated financial statements, there is more than a remote likelihood that a material misstatement and/or disclosure omission will not be prevented or detected in its interim or annual financial statements with periods beginning January 1, 2018,” the company disclosed.

The adoption effort has also caused companies to take a closer look at how they have accounted for revenue in historic periods under historic rules, Usvyatsky wrote. The firm calls out as an example a fourth-quarter filing by Axalta Coating Systems, which said the company identified and corrected errors to previously issued financial statements with respect to the timing of revenue recognition. The company says it identified the errors, which it classified as immaterial, as part of its effort to adopt ASC 606.

Both types of control problems are concerns, says Usvyatsky, but the sample sizes the firm has identified so far are too small to be of any statistical significance. “We are at the very beginning of the filing season," she says. "For many of the companies annual reports are not going to be available until spring."