Time Is Running Out to Comply with the New FASB Revenue Recognition Standard

Planning for Lease Accounting Standard Should Be in Process, Too 

From the May/June 2017 issue of New Jersey CPA magazine (njcpa.org/newjerseycpa)

By Kevin Bogle, KPMG LLP

Research indicates that some companies may have trouble meeting the reporting deadlines on at least one of two major accounting standards that financial statement preparers must implement over the coming two years.

Revenue recognition – the more immediate, as it goes into effect on Jan. 1, 2018, for calendar-year-end public companies and Jan. 1, 2019, for calendar-year-end non-public companies – may represent a significant change, and one that many companies may be behind in implementing.

The new accounting standard for revenue recognition replaces a complex set of existing U.S. Generally Accepted Accounting Principles (GAAP) and industry practices that have more than 100 existing sources of revenue recognition guidance.

But a KPMG survey of more than 475 financial reporting executives in December 2016 found that two-thirds of their organizations remained in the assessment phase, as opposed to designing their future state or being in the implementation phase, and only 19 percent had started considering the ramifications of the standard.

Companies should have completed their assessment and be in the implementation phase already, but the survey results indicated only 13 percent have started implementation which may forecast a last-minute dash to the finish line for revenue recognition. Emphasis should be on moving beyond assessment to development of processes, systems and internal controls, as well as full implementation.

The Financial Accounting Standards Board (FASB) has also adopted a new standard for lease accounting that will require companies to recognize most leases on-balance sheet, effective Jan. 1, 2019, for calendar year-end public companies and one year later for calendar year-end non-public companies.

While complying with these standards may seem arduous, timely adoption of the new rules is imperative. Otherwise, companies will find that:

  • Their financial statements will no longer be in accordance with GAAP.
  • They will not be able to get a “clean” audit opinion.
  • If they are a public company, they will not be able to comply with SEC requirements.

Many companies will also be faced with changes to their processes, systems and internal controls. The accounting, finance, tax, IT and investor relations departments will need to work together to develop a coordinated response to the new standards.

This year and next will be a demanding time for our profession, as preparers in all industries will be affected and time is of the essence to assess and comply with these standards. Staying updated on new developments and industry interpretations will be key to successful implementation, and realistic timelines and clear accountability will be critical. The new standards will impact each company in varying ways, so the best course of action is to be prepared.


Preparers of financial information should have a plan to ensure compliance with the new revenue recognition and lease accounting standards that go into effect in the coming two years. They should already have considered the following important steps:

Establish a project management office (PMO) for each standard.

The PMO should coordinate all aspects of implementation, which should be based on a comprehensive and detailed gap analysis that identifies the difference between current accounting, tax and reporting compared to the new standards and identifies how those gaps impact systems, processes, availability of data, people and underlying contracts. This impact analysis, along with the identified gaps, will facilitate the development of a plan and help control the implementation process.

The PMO should also have timely involvement with the external auditor to ensure there is alignment throughout the process and that there are no surprises at the end.

Design and understand the new reporting environment

Both of the new standards have specific transition rules that will allow companies to select adoption alternatives that will impact the transition and future periods. In addition, companies can opt to use the transition as an opportunity to design solutions that address existing gaps in accounting processes and systems or automate certain accounting processes that are currently performed manually.

Unlike previous revenue recognition standards that allowed companies to apply new rules prospectively, this standard requires retrospective adoption by restating all comparative periods or creating a cumulative “catch-up” adjustment in the year of adoption. This could take a significant amount of time to implement accurately.

The new lease accounting standard also requires retrospective adoption by restating all comparative periods. For most companies, this will require a comprehensive and potentially complex “look back” into historical transactions that remain open on the effective date in order to recalculate historical revenue and/or expense under the new rules.

If changes to IT systems are needed or new systems will be developed, it will take more time to complete implementation and, therefore, this will need to be factored into the design phase.

Implement the accounting change

Making these significant accounting, tax and reporting changes may take several iterations before the new finanĀ­cial reporting environment becomes business as usual. It is important to allow enough time to:

  • Test the new reporting environment and make necessary corrections.
  • Document, implement and test the new controls over financial reporting.
  • Create a communication plan both internally and externally so that stakeholders understand the impact of adopting the new standards.
  • Conduct necessary internal trainings on the accounting and new processes.

Kevin Bogle is a principal in KPMG’s Accounting Advisory Services group within the Deal Advisory practice. He specializes in accounting, financial reporting and project management for complex transactions under U.S. GAAP and IFRS. In this role, Kevin supports clients in the design and implementation of financial reporting environments to meet new internal and external reporting requirements as a result of a transaction or accounting conversion.