In a move only a company as massive as Microsoft would consider, the company plans to offer restated financial statements on October 1 to reflect is early adoption for the Financial Accounting Standards Board’s two major new standards, covering revenue recognition and lease accounting. To date, only a handful of public companies have chosen to adopt even one of the new standards early.
Microsoft adopted both new standards as of July 1. Starting with the quarter ending September 30 – Microsoft’s first quarter of fiscal 2018 – the company will issue financials that include restatements for 2016 and 2017, as required for early adopters of the rules.
The net effect of the changes on the company’s income statements and balance sheets will be material, Microsoft reported. Revenues for 2017 and 2016 will rise about $6 billion reach. Assets for those years will rise by about $9 billion, while liabilities will fall by about $6 billion and $2 billion, respectively. The company said the accounting changes wouldn’t materially affect its cash-flow statements.
The reason for the moves, said Microsoft chief accounting officer Frank Brod during a special financial disclosure call with analysts, was “primarily to simplify the communication of our results by eliminating the need for non GAAP revenue reporting”.
Regarding revenue recognition, the biggest material change to the company’s GAAP financials stems for Microsoft’s 2015 decision to start booking Windows 10 original equipment manufacturer revenue up front. Since July of that year the company had been providing non-GAAP measure to exclude the impact from Windows 10 OEM revenue deferrals. (In a change from previous versions of Windows, Microsoft released Windows 10 as an ongoing “service” rather than issuing frequent updates.)
Companies must begin applying the new revenue recognition standard for annual reporting periods beginning after December 15, 2017. The new leasing standard is effective for all reporting periods beginning after December 15, 2018.
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