Spring 2015 issue of Horizons

FEATURE | The New Revenue Recognition Standard: Changes Ahead for Your Top & Bottom Line

company contracts, compensation plans and debt covenants may be affected. Implementation of ASU 2014-09 may also have tax implications, so working with both your auditor and your tax preparer during the early stages of the implementation period is critical. Entities should apply the amendments in ASU 2014-09 utilizing one of the following methods. ∙ Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. If an entity elects this transition method, it also should provide the additional disclosures in reporting periods that include the date of initial application of: – The amount by which each financial statement line item is affected in the current reporting period by the application of ASU 2014-09 as compared to the guidance that was in effect before the change If an entity chooses to retrospectively present each prior reporting period, several practical expedients are provided by the new guidance. Determining which of these adoption methods will be utilized is an important part of the implementation plan and cannot be deferred until an entity is preparing the first set of financial statements for which ASU 2014-09 is effective. The ASU also will result in enhanced disclosures about revenue. The need for this information, along with new information that may be needed to make revenue recognition calculations, will require a study to determine if changes are needed to an entity’s information technology system. ∙ Retrospectively to each prior reporting period presented. – An explanation of the reasons for significant changes

and the large amount of information it requires, the implementation schedule is actually quite aggressive. As a result, entities should be working on their implementation plan now. A Successful Implementation Plan Implementation planning should involve determining which individuals need to be involved in transitioning to the new standard. While accountants will obviously be an important part of that plan, input from other major business functions such as sales and information technology groups will need to be obtained. Internal controls should be established to ensure proper checks and balances related to the additional estimates that are required for variable consideration under the new standard. Another important part of implementing the standard is figuring out exactly what changed from the extant guidance in U.S. GAAP. This comparison should help in determining how an entity’s financial statements will change. However, equally as important as determining what has changed in the accounting treatment is determining how the new standard affects the entity from an operational standpoint.

A determination should be made as to how such things as operating metrics,

page 26 | horizons Spring 2015