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Audit & Assurance

Leasing and Revenue Recognition Standards Update

Private companies and nonprofit organizations face a heavy burden to keep pace with the ambitious standard-setting of the Financial Accounting Standards Board (FASB). Five major standards are required to be adopted in the near term for a broad range of private companies. Citing limited financial reporting resources of private companies, complexity and size of the standards, and the overlapping dates of required adoption, the American Institute of Certified Public Accountants asked the FASB to delay the required adoption date of some of these standards. In response, the FASB issued a proposal to delay the effective dates of three of those standards, including a one-year delay to calendar year 2021 to implement Topic 842, Leases. Although it is very likely the proposal will be approved, we highly recommend companies stay focused on completing implementation. Early adopters have found that implementation took longer than anticipated.

Assessing Readiness for Adoption of the Revenue Recognition Standard

Privately held companies are required to adopt ASC Topic 606, Revenue from  Contracts with Customers, in 2019. The following are actions companies should be taking:

  • Overall preparedness – The implementation of the revenue recognition standard is more time-consuming and labor-intensive than expected. It will require coordination with other departments outside of accounting, including tax, information technology, sales, and human resources. The standard is principles-based, requiring significant management judgement. It is critical to complete the analysis and documentation of revenue streams as soon as possible.
  • Understand the five-step process to recognize revenue – Companies must evaluate every promise they make to their customers and document each performance obligation that is distinct. After formally going through the process, many companies are surprised to find they have multiple performance obligations and/or variable compensation that could affect the amount and timing of revenue.
  • Documentation – For many companies, the new standard will not result in material changes in the recognition of revenue; however, even these companies will need to document the results of their revenue recognition analysis in order to support their position. Companies should perform and document an analysis of their revenue contracts as soon as possible to avoid surprises.
  • Continuous monitoring – Companies should monitor their revenue sources, update their analysis and
    documentation, and keep stakeholders and auditors informed of any changes.

If you have questions or would like more information regarding implementation, please contact Ben McKinney at bmckinney@windes.com or 844.4WINDES (844.494.6337).

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