The standard issued in May by the Financial Accounting Standards Board and the International Accounting Standards Board does not become effective for public companies until 2017. But PwC and the Financial Executives Research Foundation said in their report that 17% of companies are already very familiar with the standard and 30% are somewhat familiar with it.
Respondents in the finance group seemed to have the greatest level of knowledge, with nearly 40% saying they had significantly considered the standard compared with 10% or less in all other corporate functions, the survey, which polled 174 companies, said.
Eighty-seven percent of respondents expect to make at least some changes to their company’s internal controls in response to the new standard, although only 45% expect to make changes to their business models.
Among other things, the standard, which will replace more than 200 ad hoc pronouncements on revenue recognition, requires substantial disclosures around revenue, requiring the preparation of computations and data, particularly for companies with long-term contracts.
Perhaps not surprisingly, respondents identified disclosures as, by far and away, the number one area they expect to result in increased operational effort.
But the survey also found that 35% of companies had not yet attempted to quantify the impact of the new standard on financial statements and 23% were not sure whether it would have a material impact on income statements or balance sheets.
“Although the new standard will affect certain industries more than others, all organizations will feel some impact,” Farhad Zaman, PwC deals partner, said in a news release, adding that although the effective date for implementation “may seem far off, those most affected by the change should start preparing now.”
Among the several key areas that companies expect to be challenging from a technical accounting perspective are applying the variable consideration constraint; determining the impact of contract modifications; determining whether items are “distinct” in multiple element arrangements; estimating the standalone selling price of performance obligations; and determining the impact of the “collectibility threshold.”