As every corporate accounting executive knows, the biggest iceberg on the horizon in 2017 will be the impending new standard for revenue recognition—a big, honking, conceptual change in how companies recognize and record revenue, going into effect for annual reporting periods after Dec. 15, 2017.
Calcbench certainly cannot give our subscribers specific advice on implementing the new rule. Our data, however, can help accounting executives see how others are approaching various challenges of implementation, as you chart your own course on this GAAP-required journey.
For example, public filers are supposed to be disclosing how they have been preparing for the new standard. You can typically find that discussion under “Accounting Changes and Error Corrections” or “Accounting Policies” in companies’ regular financial filings, plus the occasional guest appearance in Management Discussion & Analysis or even an earnings release.
Exactly what those disclosures say will vary from one company to the next. Here are some examples from this week.
Hewlett-Packard Enterprise. “The Company is currently assessing the impact of these amendments and the transition alternatives on its Consolidated and Combined Financial Statements. The Company plans to adopt the new revenue standard in the first quarter of fiscal 2019, beginning November 1, 2018.”
John Deere Co. “The adoption will use one of two retrospective application methods. The company plans to adopt the ASU effective the first quarter of fiscal year 2019 and is evaluating the potential effects on the consolidated financial statements.”
Navistar International. “Our effective date for this ASU is November 1, 2018. We are in the process of completing our initial assessment of the potential impact on our consolidated financial statements and have not concluded on our adoption methodology.”
Calcbench takes no formal view on the quality of those disclosures above, but suffice to say we won’t challenge anyone who describes them as, ahem, vague. Staff at the Securities and Exchange Commission have chided companies about their disclosure of implementation progress for a while; SEC Chief Accountant Wesley Bricker mentioned it again just the other week at the AICPA’s annual Conference on Current SEC and PCAOB Developments.How can you monitor what peer companies are disclosing this year about their revenue recognition progress? You can always inspect the filings of peer companies as they arrive in our databases, and thanks to the XBRL data-tagging technology we use, those filings arrive pretty fast (usually within the day they are filed to the SEC).
And if none of our pre-selected peer groups quite fit what you want, you can always create your own peer group using the Choose Companies option on the Compare Multiple Companies page.
The new revenue recognition standard will also require companies to provide more disclosure of “disaggregated” revenue—that is, a breakdown of revenue streams to help investors understand the amount, timing, and uncertainty of revenue and cash flows.
Exactly what does that mean? Again, Calcbench defers to the many audit advisory firms out there happy to ponder that question with you at some respectable hourly rate. You can, however, glean some clues from companies’ segment reporting—which may not be a precise match for the new disaggregated reporting you might need to disclose, but it will be somewhere to start.
Segment reporting varies by company. For example, since John Deere only sells farm equipment, it considers itself one operating unit—but it does report revenue by two geographic segments, the United States and the rest of the world. In contrast, Brocade Communications sells data storage products, networking equipment, and professional services—so it reports revenue for those three operating units, as well as for the United States and four international regions.
You can find specific companies’ segment reporting by looking up their revenue numbers on the Company-in-Detail page. You can also investigate segment reporting in bulk on our Segments, Rollforwards, and Breakouts page.
And, of course, stay tuned to this blog, SEC speeches, and pronouncements from your audit or advisory firm, since pressure on the new revenue recognition standard will only grow larger in the new year.