Whether they are well prepared or behind schedule, companies need to provide investors with disclosures about how FASB’s new revenue recognition standard will affect them, SEC Chief Accountant Wes Bricker said Monday.
The new standard takes effect for public companies, certain not-for-profits, and certain employee benefit plans for annual reporting periods beginning after Dec. 15, 2017. All other entities have an additional year to implement the standard.
Investors and the staff of the SEC’s Office of the Chief Accountant will be looking for increased disclosures in 2016 filings and during 2017 about the impact the revenue recognition standard and other new standards will have on companies, Bricker said.
“Companies may find it helpful to investors to incorporate a discussion of the anticipated effects of the standard into their investor outreach activities to foster timely absorption of the information by market participants,” Bricker said at the AICPA Conference on Current SEC and PCAOB Developments in Washington.
“Even if the extent of change for a particular industry or company is slight, the disclosures necessary to explain the changes—and when implemented, to describe revenue streams—may not be,” Bricker added.
A year earlier at the same conference, Bricker sounded an alarm over what he saw as a lagging in the overall state of readiness for the implementation of the standard by company preparers. He said Monday that “clear progress” has been made, but added that there is still more work to do.
At companies where implementation is lagging, Bricker said, preparers, audit committees, and auditors should discuss the reasons for the delay. He said disclosures should be provided to investors about the situation.
“Successful implementation requires companies to allocate sufficient resources and develop or engage appropriate financial reporting competencies,” Bricker said.
Meanwhile, he cautioned auditors to maintain their independence as their clients implement the revenue recognition standard as well as recently issued standards on leases, financial instruments, and credit losses. During this implementation, auditors may be asked to provide input as management changes accounting policies, processes, and controls.
Investors can benefit when auditors and management discuss new accounting standards, Bricker said, but he added that auditors need to use professional judgment and common sense in their interactions with clients.
“Auditors should never act as management or be involved in decision-making,” Bricker said. “Otherwise, the auditor could later be put in the position of auditing what is essentially his or her own work. However, auditors can still provide their knowledge and point of view during the transition period, as long as they are mindful of the independence rules.”
—Ken Tysiac (firstname.lastname@example.org) is a JofA editorial director.