Almost two-thirds of public companies are finding it difficult to implement new revenue recognition standards, citing rising costs and time constraints, according to a survey by KPMG. The report shows that companies are finding that implementing the standard set by the Financial Accounting Standards Board (FASB) is more complex, time-consuming and costly than anticipated and many are facing challenges in meeting their own internal deadlines, while the actual go-live date for the standard (for public companies only) is 1 January 2018.
The 245 companies that took part in the survey – The Deadline is Approaching for Accounting Change – said they are having difficulties stemming from competing priorities, a lack of internal resources and struggles with interpreting the new standard, among other factors. Private companies have an extra year to comply with the standard but they are also facing similar challenges in meeting the 2019 FASB deadline and 22 per cent of private companies have yet to begin the process of adopting.
KPMG's Steve Thompson said: “Companies are pressed for time, forcing many to wait until after the effective date to automate their revenue recognition process through system changes. Those still in the assessment phase are likely to find themselves saddled with a manual solution in the near term, leading to internal control challenges and added costs.”
Some of other findings of the survey include:
- Thirty-nine per cent of public companies said they are still assessing the impacts of the revenue recognition rules.
- Only six per cent of public companies said they had completed implementation.
- Total expected implementation costs had increased from the prior year for 57 per cent of the public company respondents.
- Internal communications need to be improved; 33 percent said C-level executives had little or no involvement in the process.
- Sixty per cent of public companies acknowledged that they are facing challenges and continue to run behind schedule with their revenue standard implementation efforts due primarily to competing priorities and human resource constraints – however there has been an improvement compared to last year.
- Compared to last year, fewer companies expect to implement system changes to automate their revenue recognition requirements. This is not surprising, as many are running out of time and finding that significant system changes will have to wait until after the effective date.
- As companies begin their leasing implementation efforts, nearly 60 per cent indicated that they have been surprised by some of the challenges they are running up against, including identifying embedded leases and selecting and implementing an adequate leasing system.
- Forty per cent of companies also said their leasing implementation costs are exceeding the amount budgeted a year ago, caused largely by a realisation that they will need new lease accounting software and having to spend more time than expected to identify, abstract, and enter leases into a system.
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