U.S. board members cite challenges in revenue recognition implementation

By Neil Amato

Board members of U.S. public companies cite updating systems and policies and revising existing contracts with customers as the most challenging aspects of FASB’s new revenue recognition standard, according to a new survey.

The 2014 BDO Board Survey said that 52% of board members have been briefed on how their companies will adopt the new, converged standard, which was released in May by FASB and the International Accounting Standards Board.

FASB Chairman Russell Golden said Tuesday that the board is considering whether the effective date of the standard needs to be deferred.

The standard is scheduled to take effect for reporting periods beginning after Dec. 15, 2016, for public companies or reporting periods beginning on or after Jan. 1, 2017, for companies that use IFRS. That timeline means that U.S.-listed companies planning a full retrospective transition need to begin capturing data by Jan. 1, 2015.

FASB is considering deferring the effective date of the standard because of uncertainty about its requirements.

The BDO survey gauged the sentiment of 75 corporate directors of companies with annual revenue between $250 million and $1 billion.

In the survey, 28% of directors cited updating systems and policies as a top challenge in implementing the standard, followed by existing revenue contracts with customers (25%) and revising debt covenant agreements with banks and other financial institutions (17%).

Other topics of note from the survey:

Auditing Standard No. 18. Twenty-five percent of board members have been briefed on the PCAOB’s new standard focused on related parties and unusual transactions, which is scheduled to take effect in 2015. Just one-third of those familiar with the rule expect it to affect their governance of compensation programs in the future.

Cybersecurity. Fifty-nine percent of board members say they are more involved in cybersecurity than they were a year ago, and 55% say their companies have increased investments in cybersecurity. Among those reporting growth in information security budgets, the average rise was 19%.

Tax inversions. Seventy-nine percent say the practice of U.S. businesses incorporating overseas to avoid U.S. taxes is an expected outcome given the high U.S. corporate tax rate, and 21% say those businesses are dodging obligations to their country and U.S. taxpayers. More than half (56%) say that Congress should address corporate tax inversions through legislation. Of those in favor of legislation, 85% said any fix should be part of broad-based tax reform.

Time management. Succession planning was chosen by 52% of board members as a topic to which they would like to devote more time. Forty-nine percent said they would like to devote more time to risk management, followed by industry competitors (40%) and management performance (37%). Board members said they would like to devote less time to compliance and regulatory issues (16%), followed by executive compensation (11%).

Neil Amato ( namato@aicpa.org ) is a JofA senior editor.

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