NEW YORK, June 14, 2016 /PRNewswire/ -- In a recent survey by KPMG LLP, the audit, tax and advisory firm, nearly 80 percent of public companies indicated that they have not completed an assessment of the impacts of the new revenue recognition standard issued by the Financial Accounting Standards Board (FASB). In addition, 60 percent of respondents indicated that they are running behind schedule in their overall implementation of the standard, which has an effective date as early as January 1, 2018, for many organizations.
Detailed findings of the survey may be found at http://www.kpmg.com/us/accounting-change-survey.
"Organizations are running short on time, and need to turn greater focus toward their revenue recognition implementation efforts to meet FASB's deadline. It is concerning that more companies have not completed their assessment activities, which is a fairly straightforward step – as compared to designing and implementing system changes that can easily take more than a year," according to Steve Thompson, KPMG's Advisory lead for Revenue Recognition. "Some companies appear to be underestimating the time, effort and resources needed to effectively comply with the standard."
Respondents overall say that their efforts to move forward with implementation have been hampered by competing internal business priorities, human resources constraints, as well as financial limitations. While two-thirds believe implementation costs will total under $1 million, 17 percent foresee spending between $1 million and $2.5 million, and for 16 percent, up to $20 million.
"As more companies complete their assessment activities, they will have better insight into how their internal controls, processes and IT systems need to change, which will likely lead to increases in estimates of implementation costs," advises Thompson.
Respondents were divided as to whether their systems will need to change, or if they will rely on existing systems or manual processes to operationalize the new standard.
"Many companies may find that they are running out of time to make system changes and instead turn to manual processes and controls to implement the standard, leading to increased risk of errors, additional costs, and less efficient operations," added Thompson.
Compliance with New Lease Accounting Rules
Nearly half of all companies surveyed have not begun to assess the impacts of the new FASB lease accounting standard, which has an effective date of January 1, 2019.
"Although the adoption deadline is a few years away, companies should not delay their assessment. To effectively comply with the leasing standard's requirements, companies will need to properly identify existing gaps and prepare to report several years of data, which takes extensive planning," according to Dean Bell, KPMG's Advisory lead for Leasing.
Few companies have conducted an inventory of their leases or even formed a project team to help implement the new leasing rules, according to the survey. Respondents indicated they are most challenged by implementing the IT systems needed to move leases onto balance sheets.
Adds Bell, "Leasing is not core to most businesses, so companies may not have an existing lease inventory system to capture the key data required under the new standard. Identifying, analyzing and disclosing the effects of recording leases on the balance sheet are a series of exercises that alone will take significant time, in addition to the lead time required to install a new system. Many companies should consider employing an inventory system as soon as possible and assembling a cross-functional team of personnel to understand broader organizational impacts."
About the Survey
KPMG surveyed more than 140 companies, representing all major industries, in spring 2016. Nearly 80 percent of respondents reported revenue of $1 billion or more. Seventy-six percent of companies are public, and 24 percent of companies are privately held.
About KPMG LLP
KPMG LLP is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 174,000 professionals, including more than 9,000 partners, in 155 countries
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SOURCE KPMG LLP