Revenue is one of the key measures of a company’s performance. Yet deciding what counts as revenue varies from industry to industry.
Accounting rule-makers are trying to fix that. Two years ago, the U.S. and international governing bodies began issuing more uniform standards for determining revenue. Public companies were given until 2018 to comply.
The problem is that many companies are way behind in the process. Some haven’t even started. And time is running out.
In a recent KPMG survey, 80 percent of the respondents admitted they’re still assessing the impact of these new rules, leaving less time to implement required changes to systems, process and other areas
of their business.
The process is far from quick or easy. Applying the new rules requires substantially greater judgment, and the transition requirements do not allow prospective adoption, complicating the effort. There also are burdensome new disclosure requirements.
In fact, the KPMG survey showed that overall, companies considered the new disclosure standards to be the biggest challenge. Even companies that aren’t making big changes in their revenue accounting have to deal with the expanded disclosures.
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Everything from office space to equipment is leased by companies. Under the new lease accounting standards, companies will have to capture their operating lease obligations for most leases on their balance sheets. The intent is to give investors a more transparent understanding of a company’s lease liabilities above and beyond the current future commitments disclosure requirements.
The new leasing standards don’t take effect until 2019 for most public companies. However, that doesn’t leave much time to comply with the required changes.
For one thing, most large companies have thousands of operating leases in numerous locations. Simply identifying these leases is likely to be a significant undertaking. Subsequently, leases then need to be analyzed, entered into a lease accounting system, validated and monitored.
So how are companies going to catch up? Here are some ways to get you moving forward.
Figure out the cost. Companies should consider whether they have sufficient budget to cover the cost of these projects. Given that many companies are still in the early part of their assessment phase, cost estimates may increase substantially as companies gain better insight into what’s needed.
Don’t underestimate tax issues. Less than 30 percent of companies in the survey said their tax professionals were involved in the effort. This poses a problem since the new standards potentially have a broad impact on taxes.
Don’t ‘wing it.’ Some companies are considering implementing manual processes to address the requirements of the new standards. That approach increases the risk of errors, and may result in increased operating costs and less efficient operations.
Get outside help. Companies indicated in the KPMG survey that they were behind because of competing priorities, lack of manpower and/or financial limitations. If that’s the case, an outside adviser can help assess what you need to do and guide the implementation process.
To learn where your company stacks up in the race to implement the new rules for revenue and leasing download KPMG’s The Great Accounting Challenge.
This content was produced by WSJ. Custom Studios and previously appeared on wsj.com.
source -http://www.forbes.com
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