Accountants and investors are likely to each have their own idea of what revenue recognition should look like to them. Conversations surrounding this critical topic are often full of confusion. In the digital age, accountants face enormous challenges to finding good information about expected regulatory changes, and few people can predict what to expect regarding revenue recognition requirements for the coming year.
If this is the case, how are you supposed to prepare your firm for the coming tax season? You can brush up on the factors so that you have reliable sources when questions arise. That way, you won't be surprised by new standards that pop up in the new year.
How to Find the Facts
The Financial Accounting Standards Board’s (FASB) new standard won't be that hard for experienced professionals to learn. It mainly lays out what firms and accounting professional should include in revenue computations. In 2018, FASB encouraged accountants to define revenue as the total money received from clients for services rendered, and this applies to all transactions and nearly every customer you will encounter.
Of course, financial standards are never quite as elegantly simple as they might appear. For this reason, you're encouraged to dive deeply into an analysis of the new rules. Customers are still going to have a lot of questions about the latest changes. Even though immigration, tax reform, and healthcare concerns steal the daily headlines, financial standards impact businesses tax obligation and profit margin, and it's the accountant's job to relay this less sexy information to ill-informed clients.
Going to Back to Basics Helps
With all the recent changes, you may be tempted to spend your research time learning the minutiae of the revised standards. However, this is also a great time to reacquaint yourself with the basics rules for your industry. Make sure that you know the effective dates for new standards so that you don't make a mistake that can cost you or your clients a lot of money.
It's an inconvenience to adjust your business model and practices to accommodate new regulations. However, the changes bring more specific definitions of what constitutes revenue and make it easier to accurately report the numbers. Investors who are thinking about backing a company want to get an accurate picture of its revenue stream. Failure to report accurate numbers could send stockholders or private investors running for the hills.
For these reasons, accountants need to think of the 2018 update to revenue recognition accounting as a much-needed level setting that will improve financial reporting across all industries.
Making Sure You've Covered Your Bases for the Changes
Those who have brushed up on the changes still have some work to do. The most difficult adjustment to new revenue recognition requirements and standards is putting them into practice, especially if you've recently formed an LLC. This could involve a protracted review of your operations. Fortunately, there are already several guides to help you implement the new regulations before the revenue recognition deadline.
Deloitte has published a comprehensive implementation guide that's an essential read for anyone in accounting or within a public firm under the influence of FASB rules and regulations. Familiarizing yourself with these changes can help you wade through the uncertainty so that you're more comfortable with what's required. When you understand how major players in the industry are coping with the changes, you'll gain the confidence to formulate a roadmap for your own firm. It can even help you avoid some of the possible pitfalls others have faced.
Don't forget about compliance! Build checks and balances into your internal operations. Make sure the appropriate people are reviewing existing contracts to figure out if you need to adjust the pricing previously agreed upon with your clients. One of the things many accounting firms and professionals have forgotten to include is noncash considerations, which can become troublesome if overlooked until late in the analysis.
To ensure compliance, make sure that you and your client have fulfilled all the performance obligations outlined in the contract. Otherwise, you won't be able to collect revenue for goods or services delivered. On the other hand, if you decide to brave a deep dive into your finances, consider how the ways your industry differs from others.
While FASB’s new revenue recognition rules apply to all industries, one realm of the market can be very different from another. Anyone who's in business can agree that it’s useful to study how other companies have dealt with them. However, it's equally important to consider the unique qualities of your industry and to include things that an outside consultant doesn't have the experience to throw in the mix.
As the new year comes around, don’t be caught off guard by the new revenue recognition accounting requirements. If you prepare your team ahead of time, tax and audit seasons should verify your compliance with the new standards. Need more talent? Click below.