Companies should prepare for resource issues and other implementation challenges as the clock winds down.
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Revenue Recognition implementation takes a lot longer than people think and Spring will be a critical time. As companies scramble to work on the new standard and focus their time and resources on satisfying the revenue and measurement requirements, many companies are ignoring the disclosure requirements. According to Eric Knachel, senior consultation partner, revenue recognition at Deloitte & Touche LLP, thats a big mistake. FEI Daily spoke with Knachel about the progress thats been made and how to catch up if youve fallen behind.
FEI Daily: We spoke in October about Revenue Recognition readiness after the release of Deloittes Revenue Recognition Roadmap, and, at that time, you shared that you thought most companies are in an assessment phase. What phase do you think theyre in now?
Eric Knachel: Id say there are still many companies in the assessment phase, although I think that a number of them have moved from assessment to beginning the implementation. The thing about the assessment phase is that its pretty broad, you can be in that phase and working at it for a week or months. The reality is, for calendar year-end companies, between October and now there probably hasnt been a whole lot of activity on the new revenue standard, just because its their year-end close. So, there probably hasnt been an enormous amount of progress made in that time. The Spring and Summer become critical time periods.
FEI Daily: If many companies still have a lot of work to do and may not intend to consider the standards new disclosure requirements until early 2018, is that a risky strategy?
Knachel: Its definitely a risky strategy. What weve seen is that the actual implementation takes longer than people imagine, and so as result you run into situations where theres more to do than you actually have time for. As that runway gets shorter, you start making it a lot more difficult on yourself and you may run into resource issues, both internally and externally. External resources will become more difficult to find.
FEI Daily: You also shared that you thought more companies would be going to full retrospective route versus the modified retrospective route. Do you still find that to be the case?
Knachel: Theres probably been a bit of decrease in the number of companies that are doing full retrospective compared to where we were before. The business reasons for why someone would do full retrospective are their peers, investor relations, and the level of work and cost. Those business reasons havent changed. If companies have procrastinated in terms of implementation and were previously on the fence, theyre seeing the clock ticking they saying, Were going to go modified retrospective because, while we didnt think the difference in effort was enormous, there is a difference in effort and our runway is shorter and weve got to get this done.
FEI Daily: Are you hearing different challenges from companies this year versus last year?
Knachel: For some of the companies that have done the assessment and the implementation, theyre moving into the disclosure. Were seeing that that is proving to be a challenge. Most companies are scrambling to work on the new revenue standard and focusing the bulk of their time and resources on satisfying the revenue and measurement requirements, those are the high-profile elements. But in that process, many companies are largely ignoring the disclosure requirements. They may view it as a minor detail that can be dealt with once the standard goes into effect. I think thats a mistake. Waiting for that until the end is proving to be problematic for companies.
FEI Daily: What is your recommendation to companies that have fallen behind when it comes to implementation at this point?
Knachel: Theres no time to lose. Not to suggest that crash diets work, but if you wanted to lose 20 lbs. in the span of six months, and youve gotten to month five and you hadnt done anything, you could arguably get onto a crash diet and lose your 20 lbs. in a month.
Here, theres really not a crash diet available to you. The work is still there and if you didnt do anything in six months, youll have to work a lot harder and be a lot more focused and intense. It probably gets back to resources.
