Financial statement preparers may be feeling a bit less pressure in the wake of a recent decision by FASB and the International Accounting Standards Board (IASB) to delay the effective date of the new revenue recognition standard by one year.
The delay gives preparers some relief as the boards work on clarifying changes to the standard, which was issued in May 2014.
But there’s still plenty of work to do, SEC Chief Accountant James Schnurr said last week. “The effective date of the standard will be upon us before you know it,” Schnurr said Friday during a speech at the University of California–Irvine Audit Committee Summit in Newport Beach, Calif.
Schnurr said he is encouraged that preparers, auditors, and standard setters are working together to identify, evaluate, and resolve implementation issues.
He said he’s confident that the standard will lead to comparability across industries and jurisdictions, which was one of the objectives FASB and the IASB set out to achieve. “Revenue is one of the single most important measures used by investors, and I believe the new standard—when applied with professional judgment—will consistently report revenue, regardless of the company’s industry or the capital markets accessed,” Schnurr said.
A thorough implementation plan for the standard will include key actions to be taken during the implementation phase, the estimated timing of these actions, and how management is tracking against that timing, he said.
This would include a holistic consideration of how the new guidance will affect aspects of the organization beyond the financial statements, such as information systems, business processes, compensation and other contractual arrangements, and tax planning strategies.
Schnurr encouraged audit committees to evaluate management’s planned transition method and disclosures, as the standard gives preparers the option of using a full retrospective or modified retrospective adoption. Here are other tips he offered:
Management information assessment. Management should assess whether it currently has the information to satisfy new reporting requirements. “New processes and controls may be needed in order to not only gather the information but also ensure its accuracy and completeness,” Schnurr said. Management also should take a holistic view of the potential effects the new standard may have on internal controls, he said.
Evaluate resources. Schnurr encouraged audit committees to consider whether adequate resources have been dedicated to analyzing the impact of the new standard, because the significant change could put pressure on resources for reporting earnings and preparing periodic reports.
Ask why. Audit committees should ask management to identify why changes are occurring—and in some cases why changes are not occurring, Schnurr said. Audit committees should ask whether there are different views within the industry on how to implement the standard, and if so, how management and the auditor decided that the company’s approach was appropriate.
Challenge conclusions. Schnurr suggested that audit committees challenge auditors on conclusions that do not appear to reflect the core business of the company.
Consider communication. Implementation plans should consider how management will communicate to key constituents about the impact the standard will have on the organization’s financial statements, Schnurr said.
—Ken Tysiac (firstname.lastname@example.org) is a JofA editorial director.