Issuing the Financial Accounting Standard Board’s revenue recognition rule, which will go into effect for many companies in a month, is perhaps the board’s most “transformative” action in the last decade, according to outgoing FASB member Marc Siegel.

Marc Siegel

Marc Siegel

The rule, a converged effort by FASB and the International Accounting Standards Board issued in 2014, “may or may not have significant outcomes on the revenue of your company,” acknowledged Siegel, who will depart FASB in June after 10 years with the board.

But the standard is “transformative” in moving reporting the top line of the income statement from a diverse group of industry standards to “one framework about how to think about revenue,” he said.

Speaking earlier this week at the Financial Executives International’s financial reporting conference, which focused on “corporate reporting in an era of disruption,” Siegel referred to that theme. “It’s very important to have a new framework to think about revenue items in a world where new industries are coming up every year or two. We can’t be doing very specific revenue guidance” for each new or altered industry, he said.

Siegel explained at a later press briefing that it had been important for FASB to work with IASB to issue a converged revenue recognition standard, as well as one based on a unified framework. That was because convergence meant addressing the shortcomings of each standard setter.

“You have to understand,” he said, that “we had lots of sector-specific standards. The IASB didn’t. They had too little guidance on revenue recognition, where we, in effect, had too much.”

Nevertheless, the framework hasn’t eliminated every kink in the process of reporting revenue on corporate financials, according to Marsha Hunt, who joined FASB on July 1. At the briefing, she referred to her immediately preceding experience in complying with the revenue recognition standard as the corporate controller for Cummins, a power-generation systems company.

“There’s a source of actual tension [between companies and their auditors] in the implementation process that I experienced and that I understand,” Hunt said, cautioning that she did not want to speak for corporate finance executives now that she was a standard setter. “In some ways, the companies … want the decisions earlier then some in the system are prepared to give them.” 

Marsha Hunt

Marsha Hunt

Cummins spent two years working on implementing the revenue recognition standard. “There were times where [we at] the company felt we had done our work … had put together our understanding of our business transactions [and] how this standard would apply,” she said.

But the company’s auditors weren’t “at the same stage where we were hoping they would be,” she said. Hunt and other executives felt that the auditor’s processes hampered the company in its ability “to lock and load the systems to start moving into the mechanics” of complying with the standard.

To be fair, Hunt acknowledged, the auditors were not only responsible for giving an opinion on the revenue number that appeared on the company’s income statement, they also had to be comfortable that the company had adequate controls over the implementation of the standard.

Under the revenue recognition standard, public organizations will begin complying with annual reporting periods beginning after December 15, 2017. Nonpublic organizations will apply the new revenue standard to annual reporting periods beginning after December 15, 2018.

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