FASB’s revenue recognition standard includes complex disclosure rules

A common misconception is that revenue disclosures are just like “showing your work” in math class – i.e. simply documenting whatever calculations you made to arrive at the revenue numbers. But the disclosure requirements actually involve much more. Continuing the math class analogy, it’s as if your teacher isn’t just demanding that you show your work, but also that you write an in-depth essay explaining the approach you chose, why you chose it, what assumptions you made, what tools you used, and what processes you followed to ensure nothing would go wrong.Financial disclosures

FASB’s new standard significantly increases the amount of information companies are required to disclose about their revenue activated and related transactions. To comply, a company will likely need new processes, procedures, and controls for: (1) gathering data, (2) identifying applicable disclosures (based on relevance and materiality), and (3) preparing and reviewing disclosures and related information. It will also need information systems and personnel to support disclosure-related activities. Establishing and testing all of these elements will likely require significant time, money, and effort.

Although for many companies the new disclosure requirements don’t take effect until 2018, that doesn’t mean they can wait until the end of next year to deal with them. This is particularly true for public companies registered with the Securities and Exchange Commission.

This could present some major challenges, since many companies already struggle to meet their filing deadlines. Add in the time and effort required to satisfy the new disclosure requirements  along with the potential for problems and delays in collecting, preparing, and reviewing disclosures and related data – and the result could be late filings, internal control implications, or both.

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