As we move closer to 2018, more and more companies are facing challenges in adopting the new revenue recognition accounting standard, codified as ASC 606, Revenue from Contracts with Customers. As a refresher, the adoption date of ASC 606 for publicly traded companies is for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The effective date for all other entities is for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
As the deadline to adopt ASC 606 approaches, in accordance with SEC SAB Topic 11-M, Disclosure Of The Impact That Recently Issued Accounting Standards Will Have On The Financial Statements Of The Registrant When Adopted In A Future Period, the SEC expects to see disclosures regarding both qualitative and quantitative information. Following are examples of disclosure items to consider:
- What is the potential impact of adopting the new standard?
- Is adoption of the new standard expected to result in a material change or not to the financial statements?
- What are the expected changes to existing accounting policies?
- Where is the registrant in the implementation process?
- Are there any significant issues not yet addressed by the registrant?
- If it can be reasonably estimated, disclose the potential quantitative impact on the registrant’s financial statements.
Many companies may not be able to intelligently answer these questions and, for this reason, they will need to accelerate their preparations for adopting the new standard.
As I explained in a previous post, internal coordination among the various departments is a must in order to effectively assess the impact that ASC 606 will have on a registrant’s financial reporting.