This presentation shows the changes the new revenue recognition standard will bring with it and how a company can prepare for the new standard. Posted with permission from Jeffrey Werner of Werner Consulting Group, who presented on this topic in September 2014.
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Agenda
•Overview –Who, What, When, Where, Why
•Process and Scope
•Adoption Methods
•Five New Principles of Revenue Recognition
•Significant Changes to Revenue
•Impact Assessment
•Implementation Plan
•Project Management
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New Revenue Standard
Who Is Issued the Standard?
–Jointly issued by the FASB (US) and IASB (Worldwide)
–Will be part of US GAAP when effective
–Will be part of IFRS when effective
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New Revenue Standard
What Is the New Standard?
ASU 2014-09 –Topic 606
–150 page set of accounting standards for revenue recognition
–350 pages Conforming Amendments to US GAAP
–200 pages of background and Basis for Conclusions
–Copies at FASB.org
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New Revenue Standard
When Is the New Standard Effective?
–Effective 2017 for public companies
–Effective 2018 for non-public companies
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New Revenue Standard
Where Will The New Standard Be Effective?
–The new standard when effective will be required accounting:
–In the US under US GAAP issued by the FASB
–In Countries following IFRS
•(more than 113 countries Worldwide)
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New Revenue Standard
Why Is This Happening?
–Part of ongoing process to align or “harmonize” accounting worldwide
–To establish one comprehensive revenue recognition approach for all customer contracts
–Remove current inconsistencies
–Improve comparisons between companies
–Provide more information and disclosures
–Simplify accounting and guidance
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New Revenue Standard
•Process
–Years of discussions
–Exposure Draft # 1 June 2010
–Comment period closed October 2010
–Exposure Draft # 2 November 2011
–Second Comment period closed March 13, 2012
–Project Update July 24, 2013
–Issue final standard in Q2 2014
–Effective Date January 2017
–Transition Resource Group -TRG
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New Revenue Standard
•Scope
All Contracts with customers
(except those covered by another rule Leases, Insurance and Financial Instruments)
Year of adoption methods and disclosure
No early adoption
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New Revenue Standard
Retrospective adoption
Requires comparable presentation
2017 with 2015 and 2016 restated
Simplified Transition Method
Apply to all active contracts at transition date
Cumulative effect of change in balance sheet
Disclose amount of change each line item
Explain difference between new and old in year of adoption (and quarters)
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New Revenue Standard
Current Revenue Model
•Four Principles of Revenue Recognition
–Evidence of Arrangement
–Fixed and Determinable Fee
–Delivery
–Collectability
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New Revenue Standard
New Revenue Model
Core Principle
-“Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services”
-Five Steps to Apply Core Principle
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New Revenue Standard
Five Steps to Revenue Recognition
•Identify the Contract with Customer
•Identify the Separate Performance Obligations
•Determine Transaction Price
•Allocate Transaction Price to Obligations
•Recognize Revenue on Satisfaction of Performance Obligation
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New Revenue Standard
Significant Changes to Revenue
•Change your mind set
•Principles instead of “rules”
•Expectation and Estimates
•New Vocabulary and Guidance
•Read the Standard / Get Training
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New Revenue Standard
Significant Changes to Revenue
•Contingent Revenue / Unbilled
•Stand Alone Selling Price Valuation
•Bundles
•Specific discounts and reductions
•Cash Basis / Collectibility
•Estimates vsFixed and Determinable
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New Revenue Standard
Significant Changes to Revenue
•Sell In vsSell Through
•Point in Time vsOver Time
•Time Value of Money
•Software
•Licenses
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New Revenue Standard
Significant Changes to Revenue
•Policies and Procedures
•Internal Controls
•Disclosures
•Taxes
•Timing
•Apportionment
•Transfer Pricing
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New Revenue Standard
Impact Assessment
•Determine Revenue Streams or Types
•Analyze Current Deferrals
•Determine Areas of Change
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New Revenue Standard
Impact Assessment
•Increases or Decreases in Revenue
•Forecasting and Street Expectations
•Accounting System Changes
•ERP System
•Revenue Module
•Tracking Disclosures
•Excel
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New Revenue Standard
Implementation Plan
•Determine Time Lines
•Scope and Tasks
•Project Management
•Additional Resources
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New Revenue Standard
Implementation Plan
•Determine Impact on Marketing and Sales
•Legal Contract Review
•Debt Covenants
•Revenue Sharing
•Legal Terms
•Compensation Plans
•Training and Education
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New Revenue Standard
Implementation Plan
•Business Practices
•Road Maps
•Pricing and Product Marketing
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New Revenue Standard
Implementation Plan
•Adoption Method
•Dual reporting
•Restatement
•Impact on Forecasting
•Lost Revenue
•Draft Disclosures and New Financial Statements
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New Revenue Standard
Project Management
•Assemble a Team
•Finance
•Accounting
•HR
•Sales
•Legal
•Tax
•IT
•Investor Relations
•Board of Directors / Audit Committee
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New Revenue Standard
Project Management
•Steering Committee
•Project Manager
•Reporting Structure
•Change Management
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New Revenue Standard
What Are Companies Doing Now
•Nothing
•Education and Training
•Pre-planning
•High Level Impact Analysis
•In Depth Impact Analysis
•Contract Review
•Tracking & Metrics
•Testing
•Hiring Resources
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Conclusion
Revenue Recognition Resources
•Auditor Revenue Recognition Guides and Updates
•Auditor Revenue Recognition Whitepapers
•Revenue Conferences, Webcasts and Classes
•Transition Resource Group
•AICPA
•Journal of Accountancy July Issue
•FASB website
•SEC Filings
•Webcasts
•Web Searches