NEW YORK, Oct. 27, 2015 /PRNewswire/ -- A new survey conducted by PwC US and Financial Executives Research Foundation (FERF), The New Revenue Recognition Standard — Assessing Impact and Implementation, has found that progress in implementing the new revenue recognition standard is limited. Even with the deferral of its effective date by one year, PwC/FERF research concludes that most companies do not yet have a complete understanding of how the new standard will affect their financial statements, as well as their business processes, systems and controls.
"This is arguably the biggest accounting change to happen in over a decade," says Dusty Stallings, Capital Markets and Accounting Advisory Services partner for PwC. "Given the levels of complexity involved, companies need to prepare and adequately plan for the new standard. But our research indicates that even after the delay in the new revenue recognition effective date, the overall state of readiness among corporate America appears to be lagging."
Stallings adds that "many companies do not yet even have a clear understanding of how the standard will impact their organizations and given that likely impacts extend far beyond technical accounting, this state of unpreparedness is cause for concern. It is important that companies start an assessment and get well into it so that the level of impact can be properly evaluated—even if there is none."
A total of 335 survey respondents representing companies of all sizes across a variety of industries participated with 60 percent consisting of those with $1 billion or more in revenue.
Four key findings based on the survey results are:
- Many companies do not yet have a complete understanding of how the standard will affect their organizations. Seventy-five percent of respondents have not yet completed or even begun an assessment. An initial assessment enables an organization to determine the required timeline, costs and resources needed, if any. Without having completed an assessment, companies do not have enough data to understand what the impact of the change will be.
- Financial statement impacts may be underestimated. Seventy-eight percent of respondents said that their company has not attempted to quantify the financial statement impact of the new standard. Key explanations for why companies have not begun to address the standard change span from organizations not believing that there will be a significant impact on their financial statements (50 percent) to resource constraints (18 percent), as well as a need for additional guidance (14 percent).
- There is considerable indecision regarding method of adoption. There is still a lack of clarity on which of the two methods of adoption companies are planning to take. Companies can choose between a full retrospective method requiring the standard to be applied to each period presented or a modified retrospective method, requiring the standard to be applied to existing and future contracts as of the effective date. But so far, only 17 percent of respondents could definitively say that they planned to use a specified method, indicating that the remaining 83 percent is undecided.
- Very little implementation progress has been made. More than 66 percent of companies indicated that their company plans on taking advantage of the deferral. Combined with the fact that only five percent of respondents have begun actual implementation of new processes, it appears that progress implementing the standard is limited.
The PwC/FERF survey results confirm that the new standard will require substantial effort for many companies to implement. According to the survey, 67 percent of respondents acknowledge that moderate to significant effort will be necessary to implement the new standard.
With accounting just the tip of the iceberg, change to the way revenue is recognized will have broader impacts on other areas of the business, including go-to-market strategies, income taxes, compensation arrangements and debt covenants, among others. Companies must assess their business processes, data, systems and internal controls to determine whether they can capture and report the information needed to comply with the new standard.
Not only will some companies need to implement new systems, but many report that they will also be making certain changes to their business models. The full report details the significant efforts that many companies will need to make.
"There is no one-size fits all solution to address the new standard. For some organizations, the most challenging aspect of the transition will be determining the impact on identifying performance obligations. For others, it may involve deploying the right combination of technologies and processes to address the new requirements," says Andrej Suskavcevic, President and CEO for Financial Executives International and Financial Executives Research Foundation. "Either way, companies need to prepare and adequately plan. And it is high time for companies to get started, if they have not already."
For a copy of the full survey report, click here: "The New Revenue Recognition Standard — Assessing Impact and Implementation; 2015 PwC-FERF Revenue Recognition Survey Results."
About Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and non-members alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals, and publications can be ordered by logging onto www.ferf.org.
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SOURCE PwC US