In 2014, the Financial Accounting Standards Board (FASB) adopted a new revenue recognition standard that goes live in 2018. Public companies should apply the new revenue standard to annual reporting periods beginning after Dec. 15, 2017. But so far, implementation of the standard has been spotty and, according to a new survey by Compliance Week and Workiva, many companies need to get to work immediately if they wish to be ready for implementation by the end of the year. And even then, questions still linger as to how companies will be affected by the sweeping new approach to recognizing revenue, let alone how to implement the new requirements.

The survey polled more than 100 professionals from a wide array of industries, but the three most prevalent were financial services/insurance (17 percent), manufacturing (16 percent), and software/technology (16 percent). Healthcare/life sciences (9 percent) and oil and gas mining (8 percent) were the next largest blocs.

Of the organizations surveyed, 31 percent were large accelerated filers, 11 percent were accelerated filers, 16 percent were non-accelerated filers, 1 percent were EGC filers, 31 percent were private companies, and 9 percent were not-for-profit organizations.

Nearly half (47 percent) of respondents were organizations with more than $700 million in annual revenue. 22 percent earned between $75 million and $700 million, and 31 percent earned below $75 million.

With less than a year to go, more than half are not yet ready to implement. 30 precent are still assessing and 25 percent are not sure where their organizations are in the process. Only 4 percent of respondents were adopting the standard in early 2017, and only 10 percent were designing and testing internal controls for implementation.

“It will be really hard, but it is still possible now to prepare for implementation,” said Joe Howell, executive vice president and co-founder of Workiva. “The closer you get to the calendar year, the closer it will become nearly impossible to be really prepared.”

Material or not?

The problem, Howell says, is that many people don’t see the new standard as having a material impact on their reported revenues. And while that may be true, the standard may still have a material impact on their accounting processes and internal controls.

“When people say the standard doesn’t have a material impact on their financial statements, they are not stopping to think through all of the parts of the standard that will affect them in other ways. They may well have gone through carefully and figured out that the impact on their expenses or their balance sheet is de minimis, but generally speaking, there are 700 pages of standards, 193 pages of basis of conclusions, Lord only knows how many pages in transition resource group minutes, 183 pages of the AICPA piece on it, speeches that the SEC has given, and other public statements … when you sort through all that, there are a lot of opportunities to miss something that can completely change your implementation of key parts of the standard.”

“Written contracts out there may be superseded by the unwritten rules companies followed for years. Contracts that are separate may be considered as one contract under the new rules. That could be an unpleasant surprise.”
Joe Howell, EVP, Co-Founder, Workiva

When it came to method of adoption, nearly two-thirds of respondents (65 percent) had yet to determine if they would go full retrospective or modified retrospective. Nearly one third of respondents (32 percent) said that one of their greatest implementation challenges was assessing the effect of the new standard, followed by managing scope of project (13 percent), securing resources needed for implementation (11 percent), and developing new accounting policies and procedures (11 percent). Any surprises there?

Just over a third (36 percent) considered the implementation effort to be a high priority, with an engaged and vocal senior leadership and audit committee and adequate resources allocated to implement the standard. Just over one-quarter (26 percent) of respondents said they consider implementation to an average priority, without the full support of senior leadership and having to make the case to get the resources needed for implementation. Only 15 percent considered implementation a low priority.

Almost 70 percent of respondents were either very confident (26 percent) or somewhat confident (44 percent) that they still had enough time to update documentation for changes that might result from the new standard. Howell has seen this personally and hopes that those executives betting on the new standard not being material are right. But he has his doubts and points to how there are those who are referring to the new standard as “revenue wreckognition.”

“This is an expenses recognition standard as much as it is a revenue recognition standard,” Howell says. “Expenses change a lot. So do commissions and other costs of providing services. Another change to consider is: What is a contract? Written contracts out there may be superseded by the unwritten rules companies followed for years. Contracts that are separate may be considered as one contract under the new rules. That could be an unpleasant surprise.”

Details such as these are not obvious to the casual observer, Howell says. It takes considerable time and energy to understand how the new standard will affect an organization, and he expects that a large number of accountants will be surprised when auditors show up this summer and fall to look at implementation efforts and raise previously unconsidered issues. “There are going to be a lot of shocked CFOs. No doubt about it,” Howell says.


“Financial executives have three types of resources that are at their disposal,” Howell says. “The first is people. We are repeatedly told that people are still coming up-to-speed on this standard. Several audit firms have said that they are still not finished training their auditors. There is little time left to become proficient in this standard for the people who need to know the new rules in time to implement them.”

The second resource is process, Howell says. They need to be efficient, effective, and able to reliably produce expected results. When an organization’s accounting process is designed for the previous accounting standard and not the new one, serious problems could result.


The CW, Workiva survey asked respondents: What is your status with respect to your company's efforts to implement the new revenue recogntion standard? Responses below:

“The third resource is systems or technology,” Howell says. Some software vendors have developed solutions to help companies keep two sets of books, which is required for multiple years under the modified retrospective approach. The new standard, however, will also require new disclosures and changes to accounting policies that will likely require multiple ad hoc solutions to gather and reconcile this new information.

Nearly half (46 percent) of the survey respondents are unsure or don’t know what tech solutions are being deployed for the new revenue recognition standard. One-quarter of respondents (25 percent) are relying on simple desktop tools such as Microsoft Word or Excel. For Howell, this may be indicative of a larger issue.

“One thing we can be sure of,” Howell says, “the new standard will require that companies make changes to the way they calculate, document, and report revenues and related expenses. Those changes will also need to be reflected in their internal control systems. Many important changes may not be immediately obvious, and may not become apparent until there is very little time left to respond.”

Howell observes that even seemingly small policy changes could require changes to a dozen or more other important documents. For example, if a company were to discover quite late that it needs to revise a revenue accounting policy, that change would also need to be reflected in its internal controls over financial reporting. It would require that the company update its risk assessments, revenue accounting process narratives, flow charts, and risk and control matrices. The firm would also need to update its internal audit programs and audit evidence necessary to document that the related controls are functioning as designed.

Changes to all of those documents could take a very long time to complete using desktop tools, especially when multiple departments must get involved. When time is short, Howell says that it’s imperative that companies minimize the number of places that require change. He recommends that where possible, companies implement a “single source of truth” approach for their accounting policies and internal controls over financial reporting. Single source solutions allow companies to make only one change and automatically update all of the other related documents. 

Howell also observed that “surveys, like this one by Compliance Week and Workiva, are important not only because they help inform, but also because they can also help companies understand better how actions may change their outcomes for the better.”