Pivotal Time for Private Companies on Revenue Recognition
It’s clear that FASB’s new revenue recognition standard might not be first choice for private company’s finance. The standard takes effect for private companies for annual reporting periods beginning after Dec. 15, 2018, and interim periods within fiscal years beginning after Dec. 15, 2019.
Here’s what private companies can do to make sure they’re able to make an effective transition to the new standard.
- Identifying your “point person.” Your organization needs somebody in charge of this implementation to make sure it gets done correctly. It is ideal to make sure this person has the support of people from operations, sales, legal, and other departments to help things run smoothly.
- Determining the resources, you will need. Will your point person be able to handle this implementation? Will it be necessary to get other help from? You need to make sure you have the right people.
- Developing a timeline. An organized set of goals, roles, responsibilities, and accountabilities will help you make orderly progress.
- Scrutinize your contracts. The information in your contracts is the key to complying with the five-step revenue recognition process described in the new standard.
- Having the right transition method. In many cases, the modified retrospective version will be easier for companies to put into effect. But the full retrospective transition will provide investors and others with more of the information they need to compare the past to the present.
- Paying close attention to disclosures. One of the main goals of the revenue recognition standard was to provide investors with more disclosures and useful information. It’s important to make sure your systems capture the right data to allow those disclosures to be made properly.
Leaders of the operation will have to dig into their contracts to make decisions on whether they have different performance obligations that need to be treated separately or services that need to be broken out separately in their reporting. All the work implementation will be a major task for private companies.