Revenue Recognition Rule Changes TBBJ PDF
1
T here is a word that accoun- tants fear may be creeping into accounting depart- ments across the country: inertia. Inertia is defined as a tendency to do nothing, and with the major changes coming to revenue rec- ognition, doing nothing is not an option. e genesis of inertia often lies in the difficulty of where to start. It’s never too early to get on the offen- sive and tackle the challenging process of implementing Financial Accounting Standards Board accounting standards codification topic 606, revenue from contracts with customers. Reviewing the following ideas may help ignite accounting departments to get moving on their preparation. Getting started An old Chinese proverb states that a jour- ney of a thousand miles begins with a single step. Your first step for revenue recognition should be to establish a cross-functional team. Representatives from accounting, finance, treasury, legal and human resources should be involved. Get the members of the team educat- ed. Having voices in the room with inti- mate knowledge of the standard is a pre- requisite to any meaningful progress. Once your team is established, con- duct a brainstorming session to identi- fy the company’s key revenue streams and what they affect (e.g. compensation, debt agreements, etc.). is will be the first step in understanding the scope of the implementation and the effect it may have on your business. Avoid the details, and focus on grasp- ing potential pain points. Assign a project lead who can stick to a timeline and hold team members accountable. Getting organized Come up with a concise, repeatable pro- cess for executing documentation; this is especially important if your compa- ny is contract-heavy. Once you reach the organization phase, you’re mov- ing from the high-level to the detailed implementation. Don’t underestimate the amount of documentation that will be required to analyze the company’s revenue streams and contracts. Even if you think, “It won’t impact us,” there is only one way to prove it, and that is to walk your contracts or revenue streams through the prescribed five-step method and provide documen- tation of that analysis. Getting your controls right Ensure that someone with the appro- priate acumen evaluates your revenue streams and/or contracts. Remember that getting the right answer at a high level does not always translate into prop- er application at the contract or transac- tion level. Companies and their legal teams need to examine their processes around contract management, including the degree of standardization, the individ- uals authorized to negotiate and sign contracts, detective controls around confirming that terms align with the company’s policies, proper storage and backup of contracts and monitoring of contract modifications, etc. Getting the big picture Topic 606 is one of many significant changes to accounting on the horizon, and some of the upcoming changes to leasing may also have an effect on your revenue recognition processes. ere- fore, when developing a timeline, don’t lose sight of the fact that resources will need to be spread among a variety of sig- nificant projects. Remember, there’s only one way to keep inertia from taking over your accounting department: Get moving. Brad Hale is a managing director with the CBIZ MHM Tampa Bay practice. ISTOCK.COM ere’s only one way to keep inertia from taking over your accounting department: Get moving. Now’s the time to prepare for revenue recognition rule changes
Transcript of Revenue Recognition Rule Changes TBBJ PDF
There is a word that accoun-tants fear may be creeping into accounting depart-ments across the country: inertia.
Inertia is defined as a tendency to do nothing, and with the major changes coming to revenue rec-ognition, doing nothing is not an option.
The genesis of inertia often lies in the difficulty of where to start.
It’s never too early to get on the offen-sive and tackle the challenging process of implementing Financial Accounting Standards Board accounting standards codification topic 606, revenue from contracts with customers.
Reviewing the following ideas may help ignite accounting departments to get moving on their preparation.
Getting startedAn old Chinese proverb states that a jour-ney of a thousand miles begins with a single step. Your first step for revenue recognition should be to establish a cross-functional team. Representatives from accounting, finance, treasury, legal and human resources should be involved.
Get the members of the team educat-ed. Having voices in the room with inti-mate knowledge of the standard is a pre-requisite to any meaningful progress.
Once your team is established, con-duct a brainstorming session to identi-fy the company’s key revenue streams and what they affect (e.g. compensation, debt agreements, etc.). This will be the first step in understanding the scope of the implementation and the effect it may have on your business.
Avoid the details, and focus on grasp-ing potential pain points. Assign a project lead who can stick to a timeline and hold team members accountable.
Getting organizedCome up with a concise, repeatable pro-cess for executing documentation; this is especially important if your compa-ny is contract-heavy. Once you reach the organization phase, you’re mov-ing from the high-level to the detailed implementation.
Don’t underestimate the amount of documentation that will be required to analyze the company’s revenue streams and contracts. Even if you think, “It won’t impact us,” there is only one way to prove it, and that is to walk your contracts or revenue streams through the prescribed five-step method and provide documen-tation of that analysis.
Getting your controls rightEnsure that someone with the appro-
priate acumen evaluates your revenue streams and/or contracts. Remember that getting the right answer at a high level does not always translate into prop-er application at the contract or transac-tion level.
Companies and their legal teams need to examine their processes around contract management, including the degree of standardization, the individ-uals authorized to negotiate and sign contracts, detective controls around confirming that terms align with the company’s policies, proper storage and backup of contracts and monitoring of contract modifications, etc.
Getting the big pictureTopic 606 is one of many significant changes to accounting on the horizon, and some of the upcoming changes to leasing may also have an effect on your revenue recognition processes. There-fore, when developing a timeline, don’t lose sight of the fact that resources will need to be spread among a variety of sig-nificant projects.
Remember, there’s only one way to keep inertia from taking over your accounting department: Get moving.
Brad Hale is a managing director with the CBIZ MHM Tampa Bay practice.
ISTOCK.COM
There’s only one way to keep inertia from taking over your accounting department: Get moving.
Now’s the time to prepare for revenue
recognition rule changes
