14 BWD | FALL / WINTER 2017-2018
By Magdalena Marriott , CPA , MBA , CISA , CGMA
The new revenue recognition standard : Lessons from SEC filers
Companies that follow generally accepted accounting principles ( GAAP ) in the U . S . will soon be required to adopt the new revenue recognition standard , which may have a significant impact on their revenue accounting processes . Most non-public companies will begin applying the new standard in 2019 , while public companies generally must adopt it beginning in 2018 .
To get an idea of the new standard ’ s potential impact — as well as what ’ s involved in making the transition — it ’ s instructive to examine filings by public companies . SEC filers are required to provide detailed disclosures — both qualitative and quantitative — regarding the expected impact of the new standard and their progress toward implementing it .
Here are a few examples from recent filings :
Salesforce . com . In its quarterly report ( Form 10-Q ) for the period ending July 31 , 2017 , the company said it anticipated adopting the standard using the full retrospective method — that is , retrospectively to each prior reporting period presented — but that its ability to use that method “ is dependent upon system readiness for both revenue and commissions and the completion of the analysis of information necessary to restate prior period financial statements .” The company is “ continuing to assess the impact of adopting [ the standard ] on its financial position , results of operations and related disclosures and has not yet determined whether the effect of the revenue portion will be material .”
Exa Corporation . In its 10-Q for the period ending July 31 , 2017 , the company said it plans to use the modified retrospective approach — that is , retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application — although it continues to evaluate the standard ’ s impact . It also noted that the standard “ is expected to have a significant impact on the way the company accounts and contracts for its on-premise software license contracts ” and that the actual revenue recognition treatment will depend on “ contract-specific terms at the time of sale and adoption of the new standard .”
The Howard Hughes Corporation . In its 10-Q for the period ending June 30 , 2017 , the company explained that it had “ concluded that after adoption we will not be able to recognize revenue for condominium projects on a percentage of completion basis , and generally revenue will be recognized when the units close and the title has transferred to the buyer .” It also said it would use the modified retrospective approach .
T-Mobile . In its 10-Q for the period ending June 30 , 2017 , the company said it would adopt the standard using the modified retrospective approach and that it was “ in the process of implementing significant new revenue accounting systems , processes and internal controls over revenue recognition which will ultimately assist us in the application of the new standard .”
It ’ s important to begin planning how to incorporate the new standard as the deadline for implementation is coming soon . Contact your Rehmann professional to discuss how the new revenue recognition standard will affect your company and what you need to do to prepare .
ABOUT THE AUTHOR
Magdalena Marriott is a principal in Rehmann ’ s audit and assurance department . She specializes in assisting manufacturing companies and financial institutions with complex accounting matters . Contact her today at magdalena . marriott @ rehmann . com .