Friday, June 3, 2016

How to prepare for new accounting rules on revenue


Accounting rules changes have an insidious way of affecting companies far beyond their accounting departments. The new standard for revenue recognition is just the latest example.

That’s why company leaders would be wise to start planning now for the new standard that becomes effective for years beginning after Dec. 15, 2017 for public companies and Dec. 15, 2018 for private companies (calendar year 2018 for public companies and calendar year 2019 for private companies).


The new standard from the Financial Accounting Standards Board (FASB) is a consolidation of all industry guidance on revenue recognition. The standard deals with revenue from contracts with customers — in short, how, when and how much revenue should be recorded as revenue.

If that sounds like accounting mumbo jumbo, consider a few areas where this change could affect your company:
  • Human resources — If you have employees who receive bonuses based on company revenues or other financial metrics, their bonuses could be impacted.
  • Sales — If you come up with new contract terms for your customers, accounting for revenues could be affected.
  • Information technology — How and when your systems record revenue might need updating.
  • Investors — If your company is publicly traded, shareholders will need to be informed about how the changes will affect the company’s financials.
Starting to grasp the ripple effect?

Companies should get started soon evaluating all of their revenue sources and contracts. They should start assessing the impact to their budgets. And they should begin to identify how the new standards will impact their organizations.

By project managing the various ways the changes will affect your business, you’ll be better prepared to implement the new standards when the deadline approaches. Yes, your chief financial officer or outside accounting lead should be on the project management team. But so should all of the administrative and operational departments of the company.

Starting this project now will make the transition smoother than if you delay.