This week’s GAAP Flash includes articles about implementing the new revenue recognition (ASC 606) and leases (ASC 842) standards.

How Revenue Recognition Impacts Pricing Strategy (November 27, 2017) – CFO.com (@cfo)

Many companies are using a subscription-based business model. These companies also tend to constantly change their product and service offerings to respond to customer demands. This article discusses now the new revenue recognition standards (ASC 606 / IFRS 15) might impact the recognition of revenue of companies using a subscription-based business model.

How It’s Relevant: We live in a subscription-based economy. Think Amazon, Costco, and Netflix. In fact, the article actually goes into detail about how ASC 606 will impact Amazon when it adopts the new standard next year. Spoiler Alert: Their revenue recognition policies will change, most notably for Amazon-branded electronic devices sold through retailers and gift cards.

If your team needs to get up-to-speed on the new standards, check out our Step-by-Step Guide to the new revenue recognition standards, which includes microlearning modules on each step of the new 5-step model.

Microsoft and Other Companies Report Their Progress on Rev Rec Standard (November 28, 2017) – Accounting Today (@AccountingToday)

Microsoft adopted the new revenue recognition (ASC 606) and leases (ASC 842) standards early and received an award for their efforts! According to Microsoft Chief Accounting Officer, Frank Brad, “Microsoft adopted the new revenue and leasing standards early to simplify communication of our results by providing one set of restated financial statements to investors and eliminating the need for non-GAAP revenue reporting.” By early adopting the standards, Microsoft was able educate analysts and investors, which resulted in a smooth transition.

How It’s Relevant: How is your company doing with implementing the new revenue recognition standard? It’s go time, and if you’re a public company, you literally have run out of time. The only things you should be worried about now are addressing the remaining technical issues, developing new disclosures, implementing the changes to internal controls, and communicating the changes to your investors. Speaking of lingering technical issues, the following revenue recognition issues were discussed by panelists at the recent AICPA Conference on Current SEC and PCAOB Developments:

• Principal versus agent considerations
• Shipping and handling expenses
• Pre-production arrangements
• Identification of performance obligations

Wondering what else was discussed at the AICPA Conference? Check out this holiday-themed post for our top 5 themes, as well as links to the comprehensive summaries published by the Big 4.

Practical Considerations for Lease Accounting (November 21, 2017) – Journal of Accountancy (@AICPA_JofA)

According to the article, the new leases standard (ASC 842) “presents a potential tsunami of changes to the financial statements of public and private companies.” Implementing the new standards will take more time and effort than most companies anticipate. The article provides some practical considerations companies might want to consider as they implement the new standard.

How It’s Relevant: A tsunami might be a bit of an exaggeration, but the new standard will certainly “jack up” the balance sheet, among other things. Speaking at the AICPA Conference, Sagar Teotia, Deputy Chief Accountant in the SEC’s Office of the Chief Accountant (OCA), provided some additional advice stating, “audit committees can contribute to an effective implementation…by setting an appropriate tone at the top and understanding management’s response to any concerns raised by the auditor.” And don’t forget about SAB 74 transition disclosures!

Check out this post for accounting resources to help you with implementation.

Do You Know Where Your Leases Are? (November 27, 2017) – CFO.com (@cfo)

One of the more complicated challenges facing companies regarding implementing the new leases standard is actually finding them! Since operating leases were “off-balance sheet” under existing standards, many companies did not do a very good job keeping track of them. As a result, companies are now tasked with determining the population of their existing leases. According to a recent study by LeaseAccelerator, only one-third of the companies surveyed have collected 25% or more of the data from lease contracts that they will need to implement the new standard.

How It’s Relevant: You better get started identifying your leases! That’s the gist of the message delivered by Wes Bricker, Chief Accountant of the OCA, at the AICPA Conference as he warned companies about the time-consuming nature of this process. How far should you go to ensure a complete population? Well, one of the panelists at the AICPA Conference who stopped by our table commented that her company actually looked behind filing cabinets, checking for bar codes or other identifying marks to identify possible leases!

Disclaimer  

This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.