BY Fraser Tennant
Major developments likely to affect a company’s accounting and financial reporting – among them the imminent International Financial Reporting Standards (IFRS) revenue recognition standard – are the focus of a new report by KPMG.
In its ‘Quarterly Outlook December 2017’, KPMG advises companies to prioritise the implementation of the new standard and ensure their audit committees and external auditors are engaged when making their significant accounting judgments before the standard becomes effective on 1 January 2018.
The aim of the revenue recognition standard is to improve comparability by implementing a single revenue recognition model across industries and across the globe. Moreover, the new standard eliminates industry-specific accounting for revenue under US Generally Accepted Accounting Principles (GAAP) and introduces a principles-based approach that more closely aligns with IFR standards.
Originally set to be introduced two years ago, the Financial Accounting Standards Board (FASB) took the decision to defer the date of adoption in order to give companies more time to complete their implementation activities.
“Less than two weeks remain before the revenue recognition standard is effective for public companies with calendar year-ends,” states the report. “Companies need to prioritise their revenue implementation efforts before the adoption date.”
While the importance of the standard is beyond question and companies need to focus on dedicating their attention and resources to its implementation, KPMG is keen to stress that companies should not lose sight of the importance of other standards that are also due to become effective in 2018.
These additional standards include the recognition and measurement guidance for financial instruments, and the leases standard which becomes effective in 2019. With these standards also intended to clarify or simplify accounting requirements, the KPMG report suggests that companies should begin their implementation efforts now to increase implementation quality.
That said, it has been reported that many companies have been slow to prepare for the new standard. Indeed, recent analysis by Deloitte of a sample of Fortune 1000 companies found only a small number were “substantially complete” with their implementation activities.
“We found that really only 15 percent of the companies that we analysed in our sample population indicated in their disclosures that they were substantially complete,” said Eric Knachel, a senior consultation partner at Deloitte. “If only 15 percent say they are substantially complete, obviously that means that 85 percent are not.”
Report: Quarterly Outlook December 2017