Many Private Companies Still in the Early Stages of Revenue Recognition Implementation With Less Than Seven Months to Deadline

The countdown to implement the new revenue recognition rules from the Financial Accounting Standards Board (FASB) has begun in earnest for private companies, yet many with calendar year ends still have a long way to go to meet the Jan. 1, 2019 implementation deadline. According to a new Deloitte & Touche LLP poll, almost half (47 percent) of private company professionals reported their organization is only in the early stages of implementation or has not started at all.

“Private companies may not realize the substantial time and resources this process often requires. Without adequate planning, this could become a fire drill,” said Mark Davis, national managing partner, Deloitte Private Enterprises, Deloitte & Touche LLP.

“Not only have many public companies indicated to us that adoption was significantly more time intensive than initially anticipated, but they were also surprised by the unexpected impact the rules had on many facets of operations throughout their organizations. With less than seven months to go, it is critical that private companies take these lessons seriously in charting their own path to compliance.”

Private company professionals are beginning to assess the impact the new standard will have on both their financial statements as well as business functions outside of finance and accounting. A quarter (25 percent) of respondents expect material impact on their company’s financial statements due to the new standard. Thirteen percent of respondents reported their organization has already developed a plan for other parts of the business while others are in the preliminary stages of assessing the rule’s impact across business functions (23 percent).

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“While many private companies are considering and planning for the impact of this accounting change throughout their businesses, our poll indicated that about 10 percent of respondents do not plan to look at this issue at all,” said Davis. “It’s important to remember that this new standard will bring changes to financial statements that could have a wide-ranging impact on a business, from bank loan needs to timing for bonuses and other compensation incentives.”

Additionally, respondents reported that the top challenge their organizations must tackle between now and January is ensuring that appropriate judgment is exercised on when and how to recognize revenue (24 percent).

“One of the biggest hurdles private companies are encountering is that revenue recognition is more nuanced than anticipated, with more gray areas than black and white,” said Eric Knachel, senior consultation partner, revenue recognition leader, Deloitte & Touche LLP. “While the new standard seeks to remove industry specific accounting for recording revenue and improve financial reporting, many areas remain where companies are being asked to make judgments and estimates. It will be important for companies to adopt formalized processes for how they handle this challenge, to ensure revenue streams and business functions follow a consistent approach.”

According to the poll results, having the right talent resources, both in number and skill set, is proving to be a hurdle in on-time implementation for 18 percent of private company respondents. Twenty-one percent of professionals reported that their organization will need to hire external resources to help implement the new standard on time.

“Don’t underestimate the amount of work and time still required to get to the finish line,” counseled Knachel. “Whether that means hiring more internal staffing resources, developing the necessary internal controls, or consulting with outside help, time is of the essence. No one gets a free pass.”

For more information and guidance on applying the new standard, please see Deloitte & Touche LLP’s “Revenue Recognition Implementation for a Private Company: Insights and Planning, Lessons We’ve Learned.”

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