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SEVEN IN TEN LISTED TECHNOLOGY COMPANIES EXPECTED TO FAIL THE WYSIWYG TEST FOR FINANCIAL DISCLOSURE ON ASC 606 DEADLINE DATE

  • An estimated 70% of public companies in the US technology sector may be non-compliant when new rules take effect as average ASC 606 implementation time is 6 months
  • Investor decisions may be disrupted or postponed by the impact of delayed compliance to new financial disclosure rules
  • Caveats in earnings statements and later restatement may lead to delayed investment decisions, subdued investor interest and lack of confidence
Rajiv Chopra
Rajiv Chopra

Analysis by Aptitude Software, the leading financial software specialist, suggests that listed US technology firms with a combined estimated market value of more than $5 trillion may be non-compliant with ASC 606 by the implementation deadline of January 2018 as the average time to resolve compliance issues is 6 months.

Of the 431 NASDAQ-listed technology businesses, seven in ten are expected to miss the initial compliance deadline, leading to potential market uncertainty in the new year. Whilst the initial implementation of ASC 606 can happen within three months, companies with complex balance sheets typically allow an extra quarter to recall the volume of data and recast results.

Aptitude’s analysis, reinforces the findings from Ernst & Young LLP survey in March 2017 which showed that, according to CFOs, more than 70% of US companies do not have their revenue recognition programs complete, with more than one third of companies experiencing challenges and at risk of falling behind schedule, including 14% of companies who have not yet begun.

Rajiv Chopra, who leads Aptitude’s newly-acquired RevStream business, said:“Investors are accustomed to making decisions based upon traditional key performance indicators. The absence of comparable metrics is sure to throw significant investment decisions into disarray.”

The new ASC 606 regulations promise international alignment on how companies record revenue and are expected to have a fundamental effect on technology companies, in many cases changing the key performance indicators that CEOs and managers rely on for all sorts of decisions such as compensation and bonus plans. Adopting the new standard is difficult as it requires unbundling customer contracts to account for vast permutations of distinct goods and services.

Rajiv Chopra added:  “We are amazed that as the January 2018 deadline looms some finance teams are still burying their heads in the sand on this issue particularly when implementation can take 6 months. Public companies have an obligation to their investors and shareholders to disclose this information. Valuations are based on data, outlook and earnings projections, but they are also based on comparables.  The challenge in the new year is for those companies that haven’t complied, investors will be comparing apples and pears.”

“Aptitude has been working with companies on their readiness for ASC 606 since 2014 to maintain investor confidence and gain a competitive edge.  Every company is required to go back over the past two years of trading and access granular levels of data for millions of contracts with customers. Without the right software this is a time-consuming nightmare for CFOs and their finance teams and calls for a dedicated team of several hundred to manually source and sift through the data- in effect taking financial reporting back to the 1950’s.”

Aptitude Software provides a flexible, high-performance ASC 606 solution to support complex accounting, business innovation and compliance with the new revenue recognition standard.  Aptitude Software is working with many of the largest public companies on ASC 606 compliance.