Two years ago, the Financial Accounting Standards Board decided to defer the effective date of the revenue recognition standard for a year until Dec. 15, 2017 for public companies to give them more time to adjust to the new standard and to work out some kinks in the far-reaching rules. The deferred effective date arrived Friday, and many companies still aren’t ready.
Deloitte recently analyzed a random sample of third-quarter filings by Fortune 1000 companies to see how implementation of the new standard is progressing. The analysis found that only 15 percent of companies had disclosed they were substantially complete with their implementation activities, but that was a slight improvement from the 10 percent who disclosed in the second quarter they were substantially complete.
Companies will still have until next year to actually file their financial statements, so they don’t have to be all ready to go as of Friday. But they at least need to be disclosing to investors where they are in the process. Those disclosures do provide some level of comfort.
Companies have been dragging their heels on getting ready for the new standard, even as the effective date approached and FASB and the Securities and Exchange Commission sounded warnings. According to FASB, public organizations should apply the new revenue standard to annual reporting periods beginning after Dec. 15, 2017. Nonpublic organizations, such as privately held businesses, are supposed to apply the new revenue standard to interim reporting periods within annual reporting periods beginning after Dec. 15, 2019. The term “public organization” applies, though, not only to publicly traded companies, but also to not-for-profit organizations that have issued, or are a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market. It also applies to an employee benefit plan that files or furnishes financial statements with or to the SEC.