Something Good to Say about the FASBPosted: February 25, 2013
I have taken the FASB to task in a few of my Blogs in the past, so I think it is only right to recognize them when they do something right. In a recent meeting the FASB listened to preparers and auditors and selected implementation dates and transition methods that meet the needs of this critical constituency. If you have not heard, the FASB decided the implementation date for the new revenue standard would be 1/1/2017. That sounds like a long time, but it is less than 4 years away and for those entities that need to make significant changes to processes, IT systems and controls, they will need every minute to make sure they don’t have to report a control deficiency because they couldn’t get everything done in time.
The FASB also made the implementation date even better by allowing the use of a critical “practical expedient” while still requiring a retrospective approach. Instead of requiring the restatement of prior comparative years (which would mean 2016 and 2015 for public companies resulting in a short 18 month window to get systems in place if you need them in order to properly track the revenue changes), the FASB will allow companies to not restate the prior years. Instead, a company will book the cumulative adjustment as of the beginning of 2017 and then report revenue for 2017 under both the new and old revenue recognition standards. This will allow users to see the actual impacts of the change for the current year and enable a comparison to the prior, unadjusted prior year amounts.
Of course, if you are a glutton for punishment, you can always still do a complete retrospective restatement. I guess some companies will do that for a variety of reasons, but I believe a vast majority of companies will take advantage of the “practical expedient” and avoid the need to determine a wholesale restatement for prior years.
I still have concerns about the revenue standard – in particular the requirement to recognize revenue when actual receiving the cash is contingent on future performance. That seems like a gigantic step away from the conservatism principle I was taught in college and brings into question other standards which will now be conceptually inconstant with the new revenue standard. For example, it has been accepted practice for a long time that you do not book contingent gains under ASC 450 until the cash is actually received or “guaranteed” receivable, but you book contingent losses as soon as they are probably (a lower threshold). Using the logic of the revenue standard, I don’t see how you can argue that the recognition timing of contingent gains should be any different then contingent losses, but I guess that will be an argument for another day.
For now, I just want to say thank you to the FASB for giving us preparers the appropriate amount of time to implement the most important standard change in our lifetimes.