If you’re in corporate accounting, you’re already thinking about the new revenue recognition standards scheduled to go into effect in less than three years. These new rules are complex and will require a good deal of preparation.
For background, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have agreed on a converged set of revenue recognition standards. The goal, according to the FASB, is to establish principles for the information that organizations provide on their financial statements about the nature, timing, and uncertainty of revenue from contracts with customers. Barring further delays, the first of these changes are scheduled to go into effect in late 2017.
Corporate finance teams will spend considerable time evaluating the standards and determining their impact. At a high level, this will require a three-step process:
- Assess Impact: Review contracts, revenue procedures, and accounting policies, and identify the relevant changes required under the new standards.
- Evaluate Options: Consider how any required changes will impact processes and systems, and understand various reporting scenarios before determining which one to adopt.
- Execute Change: Implement process and system changes to support the new standards. This includes collecting and converting data and drafting disclosures (both during the transition and moving forward).
While there’s much to evaluate, one important consideration is how your financial system (or systems) will impact the process. Is your system equipped to support the complexity of these changes? Can your organization do retrospective reporting in the system, and avoid having to do it manually in spreadsheets? Can your system support any changes without the hassle and cost of a software upgrade or need for a bolt-on application?
Hopefully your answer to all of these questions is yes. Because a financial system should be empowering —one that can convert historical data and offer flexible reporting capabilities to meet additional disclosure requirements. For those who answered no or are uncertain, your system could be a deterrent throughout this process.
If you’re a Workday Financial Management customer, the answers to all these questions is yes. Your finance leaders are equipped with a core financial application that was specifically designed, in the cloud, for future changes such as new mandates and regulations. In addition, we will work with you to help ensure a revenue recognition process that’s as smooth as possible. We’re also partnering with leading accounting experts that specialize in revenue recognition to ensure that our application can support customers adopting the new GAAP guidelines on the near horizon and for many years to come.
Watch this space, as we’ll be sharing some additional perspectives on revenue recognition. We’re thinking a lot about this and will be there every step of the way.