The Financial Accounting Standards Board has approved a one-year deferral of the effective date of the new standard on revenue recognition, pushing the adoption requirement out to 2018.
FASB met to review comments on its April proposal to defer the effective date and determined it will move forward with a one-year delay for all entities. Public companies will be required to adopt the new standard with interim periods beginning after Dec. 15, 2017, so the standard takes effect in January 2018. The board also determined it will allow companies to adopt the standard as of the original effective date, which is January 2017, if they are inclined to do so.
FASB developed and approved the massive new accounting standard in tandem with the International Accounting Standards Board to overhaul the recognition of revenue in financial statements. The boards finalized the standard in May 2014 and called for a 2017 effective date. Given the requirement to present three years worth of comparative data in financial statements, that means companies ideally needed to be ready to run parallel accounting systems with the opening of the 2015 reporting year to collect and prepare information under two sets of accounting rules.
As companies began working through the standard, the boards’ joint Transition Resource Group began fielding implementation questions, a handful of which were referred to the boards for their consideration of possible changes to the rule.
The change in effective date is among the most critical changes to the new revenue recognition standard FASB has pursued. Also under consideration, the board is developing changes to the original guidance meant to clarify how entities should account for licensing arrangements, how companies should identify performance obligations, and when to recognize revenue on a gross versus net basis.
The extra year is likely to be welcome news to companies that have said they are still working to determine how they will adopt the new standard. Some say they need FASB’s final word on the outstanding changes to the standard before they can fully implement the requirements.
Steve Hobbs, managing director at consulting firm Protiviti, says even more than a year after the final standard was issued, plenty of companies are still getting up to speed on what they will have to do to comply. “Everyone is overwhelmed already with what appears to be a very complex transition,” he says. “The further they get into it, the more they find out there’s more to do.” Many companies are still determining their implementation plan, consulting with auditors, and bringing in outside service providers to help, he says.
As often happens with new regulatory requirements, companies have been through a phase of delaying action in hopes of relief or deferrals of some kind, says Hobbs. “We’re at the point now where there’s an understanding that this has some teeth to it,” he says. “They may not like it, but it’s time to put our heads down and do this right.”