This is why it is so important for finance organizations to actively process the rules, consider the potential impacts and plan ahead. There are opportunities to be realized as well as risks to be minimized—all of which can be done only if the company takes a strategic approach well before the deadline.
Educate the team: Immerse the key players in the rules and gain an understanding of the big differences. There’s no shortage of analysis and interpretations of what all the changes mean. Look for webinars from sources you trust and get your auditor’s perspectives on the new standard, and share what you find with the key players in your organization.
Spread the love and make it a cross-functional thing: Get other stakeholders in the company involved, early and often. We’re talking about the big R—revenue!—and the changes could potentially impact many functional areas of the company. You want to gain perspectives from key stakeholders and share information—the impacts of the new rules can be huge. There are opportunities to change how you do business, and you want to be sure they’re part of your consideration.
Take the new rev rec rules for a spin: Identify sample arrangements that are representative of how you do business and analyze them under the new standard. You’ll want to understand the impact to individual types of contracts as well as the overall impact to the financial statements. This will help you understand what new estimates you will need make and identify data sources and or systems that you may need to develop.
Do the FASB 5-step: Take your representatives arrangements through the new standard’s five-step process. All the data you gather can be used to develop a model to estimate the impact of the new rules.
Evaluate your options and choose your game plan: Step back and reflect, once the potential impacts become clearer. Changes to contracts and incentive plans may need to happen. So could changes to how you package certain products or even how you fundamentally sell them. This is a big deal.
Normally, implementing new accounting rules impacts only the accounting department. This one is different—the changes to rev rec could change how the company does business. With what little time you have left before the standard takes effect, you need to take advantage of the potential opportunities and thoroughly evaluate your options. (The new standard will be applied to filings starting after Dec. 15, 2017 for public companies—that’s just six quarters away!)
Many companies have a major undertaking ahead of them as they evaluate and adopt the rules. The full extent of the effort should not be underestimated, or you’ll get caught in a painful crunch. The timeline will continue to shrink and so will resources as companies go through their analysis.
With pragmatic guidance and specialized expertise at the ready, savvy companies can avoid mishaps and tap into certain opportunities they might not have thought about before.
Kick off your transition to the new way of accounting for revenue by downloading A strategic playbook for taking on the new revenue recognition. The guide goes through the why, who, what and how of adopting the standard and includes helpful examples of how the rules could affect pricing and contracts at tech and life sciences companies.
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