New Accounting Rules Raise Challenges for Publically Traded Companies

Jan 5, 2017

Compliance with new SEC requirements can be time consuming and difficult.

The federal government has established new revenue-recognition rules for publically traded companies. According to an article in The Wall Street Journal by Tatyana Shumsky, this requires a transition to a “new accounting standard.”

“Public companies are required to file quarterly and annual reports using the new guidelines for fiscal years that begin after Dec. 15, 2017. The new rules replace industry-specific practices with a unified five-step model to make revenue booking for similar transactions more comparable.”

This means that companies may have to rework their income statements to emphasize revenue. The goal of the U.S. Securities and Exchange Commission in implementing the rules promulgated by the federal government’s Financial Accounting Standards Board is to provide shareholders with a clearer picture of on-going revenue for companies they’ve invested in.

As part of the transition “finance chiefs must begin explaining to investors how, if at all, the new accounting methods will impact their financial reports.”

According to Ms. Shumsky, most companies are not prepared to make the changes and related shareholder explanations by the SEC imposed deadline.

The SEC has made it clear that businesses have been provided ample time to make the accounting adjustments and that there will not be a deadline extension for compliance.

Many CFOs disagree. The financial documents of large publically traded companies are often tremendously complex which makes major format revisions time-consuming. For instance, AGCO Corp. has, according to their spokesperson Lara Long, been working to make the required adjustments and disclosures to their financial reporting since 2014. AGCO has not completed this process because it “had to start from scratch and describe what it is the company is promising its customers.”

Publically traded companies will learn in a few months whether President Trump will exert executive pressure to modify the new accounting rules. Until then, according to “Josh Paul, director of accounting at Alphabet, Inc.,… ‘fear is what you are feeling now’” if you are the CFO of a publically traded company.

It Is Crunch Time for New Accounting Rules, Tatyana Shumsky, The Wall Street Journal, Dec. 13, 2016.