Setting a revenue recognition agenda in Q4

As 2017 comes to a close, so does reporting under the current revenue recognition guidance for public companies. On January 1st, 2018 the new standard takes effect for calendar year-end companies with the potential to impact many of your company’s financial statements and operations, including business processes, systems, internal controls, financial reporting and accounting policies.

Your company has (hopefully) been preparing for these changes for a while, but as we approach the final months before the deadline, now is a good time to set a specific agenda for Q4 and the coming year. Here are five key things you should be thinking about during the last quarter before the new revenue recognition standard goes into effect:

1. Plan for disclosures

Between now and the effective date, it’s important to disclose the new standard’s potential effects in interim financial statements. Even if the exact quantitative amounts are unknown at this time, you should still make an effort to provide qualitative or directional quantitative disclosures. Be aware that most, if not all, companies will have more disclosures after the standard is implemented, so gather necessary data sooner rather than later. At the very least, establish a management strategy for identifying, drafting and communicating this information to the audit committee.

2. Operational impacts—near and long term

In the short term, if you’re using manual workarounds rather than an automated systems solution, confirm they’re being executed correctly. Once everything is functioning properly, shift your attention to laying the groundwork for automating processes including internal controls. These should be appropriately designed and tested by management so they can be documented, tested and assessed by your external auditor.

For the long term, consider implementing review controls to assess your procedures of vital operational roles. For example, data input controls can help make sure revenue is calculated through updated systems and processes are accounted for completely and accurately. Note how existing control deficiencies, such as material weaknesses, impact control considerations for the new standard.

3. Future-size your budget

Don’t think that just because you’ve hit your adoption date, you’re done—there will still likely be a lot more to do in the next year. Be proactive with your budget and get it right. Items that might affect your budget include the impact of standard on employee compensation plans or debt covenants and changes to tax accounting methods and deferred taxes.

4. Collaborate with key stakeholders

Communication is key, especially during transitional periods. Continue to engage with impacted stakeholders, both internal and external, and make sure that they’re aware of how these changes will impact their specific priorities. For example, investors may have questions about how these changes affect the company’s value, and you should have a communications plan ready detailing how you will address their concerns. Decision-makers across the company should also be conscious of the judgments that need to be made at a business-unit level. Some of these decisions may include establishing initiatives, such as an internal communication plan, or deciding how training will be developed and distributed across the company.

5. Go beyond compliance to transformation

Arriving at the effective date with a process to implement the new revenue recognition standard does not mean you have reached the finish line — in fact you might still be far off. Make sure you’re prepared to handle ongoing reporting, process, control and other organizational challenges that arise after the post effective date.

From there, remember to keep detailed plans, including key milestones and dates, to help record your progress and ensure you stay on track. Last but not least, consider implications for true business transformation. Ask yourself how you can leverage what you have learned from this process to positively impact your business, both now and in the future?

We’re entering the home stretch as we prepare for the new revenue recognition standard. But even as many can see the light at the end of the tunnel — there is still a fair amount of work even after the effective date passes. By setting an agenda now and preparing for the new year, companies can execute a plan to better position themselves to smoothly implement and follow the new standard.