December 15th is a huge day for many publicly held companies. More specifically, it is a big day for the accounting departments. Public companies will be required to file quarterly and annual reports using a new set of guidelines for fiscal years that begin after Dec. 15, 2017. These new rules replace industry-specific practices that varied wildly from one company to the next with a five-step model that everyone will use. The change is designed to make revenue booking of transactions more comparable with one another. It should also more accurately depict the overall uncertainty business among these large firms.
The change, which was implemented by FASB (The United States Financial And Accounting Standards Board) was supposed to begin last year, but several corporations successfully lobbied to have implementation delayed by a year to make it less stressful on the companies it affects. Even with this delay, there is still a limited time to adjust--especially for something like this that may impact all areas of business.
What Does the New Revenue Recognition Rule Do, Anyway?
The reasoning behind a change to revenue recognition is to change when revenue is credited. Under the existing guidelines, revenue is recognized when the risks and rewards transfer to the customer. Under the new guidelines, this occurs when the goods or services transfer. It is a seemingly small change, but one that will have a ripple effect through a company.
How Does this Change Affect Business?
For many companies, the adjustment of accounting rules means that there is a need for a new or reformatted income statement, plus comparative figures must also be provided. While the change in rules impacts the accounting department of these firms, it has become an IT issue too, as the software will need to be rewritten throughout the entire business. The impact on the IT department may be just as big of a deal as the changes the accounting department will have to handle.
Because a large company is likely using software that has been cobbled together over the years, it isn’t a simple change to implement something like this. Entire sections of code may have to be rewritten or new tools located and utilized to make certain that nothing is missed. One seemingly small change can make a significant impact on all the software used by a company.
Because this shift is affecting both accounting and IT departments, many companies have found that the best way to react is to hire experienced professionals to supplement your current staff. For instance, adding IT professionals that can assist in rewriting code to make sure the business is prepared and ready to go when the big day arrives. As a hiring professional, remember that the desire for IT staffing will only rise higher as the deadline looms closer, so getting a jump on this today is a good idea.
2019 and Beyond
Another concern is that in 2019, companies will need to begin reporting leases as part of the financial statement. Since this will create another set of IT upgrades, it may be a good idea to implement this change now, to save time and stress later.
If you are ready to begin preparing for this change today, adding dedicated staff is a good first step. Reach out to us at ICS. We are staffing industry with a focus on both information technology and accounting. Contact us today and let us answer any questions you may have or help you with the IT staffing you need to make this transition easier for your entire business. We look forward to working with you!