The FASB’s proposed
one-year delay in the effective date
for the new standard – where US companies are not yet ready to adopt it – follows
Staff Audit Practice Alert No. 12
, issued by the Washington DC-based Public Company Accounting Oversight Board (PCAOB) last September, which stated, “PCAOB Inspections staff continue to observe frequently significant audit deficiencies in which auditors did not perform sufficient auditing procedures with respect to revenue.”
Reacting to scrutiny from the PCAOB, auditors have increased pressure on revenue reporting processes – increasing the focus on testing from contractual arrangements, evaluating the presentation of revenue, and testing recognition of revenue.
There is still work to be done. The PCAOB has
made it clear
that the issues discussed in the practice alert will still be relevant under the new accounting standard.
New processes are required
The final standard is likely to require American companies to make changes to their current processes for collecting, organising, and analysing critical information – impacting key activities related to contractual arrangements, the amount of revenue to be recognised, the correct period in which to recognise it, and the operation of key controls.
Many companies are likely to find that essential pieces of information they need to gather together aren’t captured by their current systems and will need to be collected from employees through informal processes, such as phone or email.
In hundreds of interviews with reporting teams, Workiva has found that such informal processes cause inconsistent versions of key documents and unmanageable templates. Companies also struggle with inconsistent storage and retrieval practices, and cumbersome processes used to synchronise, organise, and analyse critical pieces of information.
To mitigate these issues, it will be crucial for companies to implement a seamless data collection process for reliable, efficient, and sustainable data.
Technology is the answer
The good news is that these common issues can be mitigated through technology. Businesses need an automated way to collect information effectively.
Companies should take advantage of new technologies that reduce the amount of manual effort required to collect this data. Other benefits of these technologies include elimination of version control issues, automatic storage, and reducing compliance time.
Now is not the time to be complacent. The revenue recognition standard is coming, and when it arrives it will bring sweeping changes. Use this deferral period wisely, and prepare your systems and processes.
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