New Revenue Recognition Rules Arriving As Soon As September

June 6, 2013, 2:55 PM ET

New Revenue Recognition Rules Arriving Soon

Emily Chasan

Senior Editor

The U.S. Financial Accounting Standards Board and London-based International Accounting Standards Board expect to complete their joint project to overhaul rules that govern the way companies recognize revenue as soon as September.

FASB has been working on a project to overhaul revenue recognition since 2002, and expects its new rules could take effect for reporting periods after January 2015. The proposed new rules are expected to make it easier for investors to compare revenues between companies by eliminating inconsistencies in some industry-specific rules, and changing the way revenue is recognized at companies with long-term service contracts or firms that have multiple delivery periods for a good or service and recognize revenue over time.Without a final standard, companies say it is still tough to prepare for the change, but since most companies are affected by the rules in one way or another, there are some early ways companies can prepare before the final rules come out, executives said.

“I don’t think there’s any heavy lifting going on right now,” said Allan Cohen, senior vice president and controller at NBC Universal, at a Financial Executives International conference in New York this week. Mr. Cohen said he expects some changes to the standard and the final rules will lead to more specific planning.

Some firms, however, are starting to look at how they will have to change their policies to meet the new definitions.

“Once it’s issued you have to kind of plan a road map for implementation,” said Jeff Gabello, senior program manager of accounting practices at IBM at the conference, adding that most companies operationalize accounting rules through a separate set of internal guidelines. “You’re going to have to re-write all your accounting policies on revenue and also revisit all your internal bright lines.

He said he expects finance teams, sales teams, pricing groups and other parts of his company will need much more education on what changes are coming in the near term.

Some companies that do expect the new standard could distort future revenues from figures they have historically reported to investors, and are beginning to model out the impact to revenue recognition changes, and trying to create ways for senior management to understand the impact of the changes, said Nicholas Difazio, a partner at accounting firm Deloitte LLP.

“Some system changes can take 12 to 18 months, so you have to have enough runway in terms of flagging those,” Mr. Difazio said.

Outgoing FASB Chairman Leslie Seidman said at the conference that accounting rulemakers are still focused on not over-complicating the revenue recognition standard in a way that would be too difficult for companies to implement, and making sure it is a “faithful reflection of the economic activity of the company.”

The FASB is still revising its rules, and she expects some lingering concerns of companies will be addressed in revised wording in the final rules, Ms. Seidman said.

Revenue recognition is “ the key item in financial statements,” for many investors and for companies where it covers the essential transactions that drive their business, Ms. Seidman said. She noted that it has also often been one of the top reasons for financial restatements.