By Michael Rapoport
Companies will have an additional year to prepare for complex
new rules on how they book their revenue under a proposal that U.S.
accounting rule-makers announced Wednesday.
The new rules, currently slated to take effect in 2017, would be
pushed back to 2018 under the proposal from the Financial
Accounting Standards Board. Companies that are ready to adopt the
new rules in 2017 would still be allowed to do so then if they
choose, however.
The revenue-booking changes, which the FASB enacted last May,
are intended to simplify and make more consistent how companies
record their revenue. Under current rules, companies in different
industries often record revenue differently and sometimes book
portions of it well before or after the sales that generate it.
But the overhaul will mean significant changes for many
companies: software makers and wireless-communications companies
will speed up booking some of their revenues, for instance, while
auto and appliance makers will see some of their revenues more
stretched out. Some companies, such as Verizon Communications Inc.,
AT&T Inc. and Adobe Systems Inc., had asked the FASB for a
delay, saying the 2017 effective date doesn't give them enough time
to revamp their internal systems and procedures to start booking
revenue under the new methods.
At Wednesday's meeting, the FASB's staff and some board members
suggested a longer, two-year delay, but FASB Chairman Russell
Golden said a one-year delay "gives the companies sufficient time
to implement."
The one-year delay would apply to both public and privately held
companies, but, since private companies are currently slated to
adopt the new rules in 2018, that would be pushed back to 2019 for
them.
Once the FASB formally issues its proposal for a delay, the
public will have 30 days to comment, after which the board will
take up the proposal again and decide whether to enact it.
Monty Garrett, vice president of finance at Verizon, said he was
"pleased" with the FASB's move. "We really just, at the end of the
day, want to give everybody enough time to figure out how the rules
apply to them."
The FASB "has made a prudent decision to ensure that this
important project is done right and not hastily," said Tom Quaadman
of the U.S. Chamber of Commerce's Center for Capital Markets
Competitiveness.
Preparing for the new rules "just proved to be a very, very
monumental exercise," said Mike Gallagher, managing partner for
assurance quality at PricewaterhouseCoopers LLP. "I think (the
FASB) made a great call in giving people more time" given the
significance to investors of changes in how revenue is reported,
Mr. Gallagher said.
Some companies, however, have said they expect to be ready in
2017 and could see increased costs if the new rules are delayed and
they have to maintain two sets of books under the differing rules.
The FASB addressed these companies' concerns by indicating that
companies could adopt the new rules as of the original 2017 if they
chose.
The FASB has already agreed to provide guidance clarifying some
aspects of the new rules, such as how licenses of intellectual
property will be treated. But there are lots of other issues with
implementation to be ironed out; James Schnurr, the Securities and
Exchange Commission's chief accountant, said in November that SEC
staffers have identified as many as 250 different issues to be
addressed as companies put the new rules into effect.
The International Accounting Standards Board, which has enacted
similar revenue-recognition changes for companies outside the U.S.,
expects to discuss in late April whether its rule should be
delayed, an IASB spokeswoman said Wednesday.
Write to Michael Rapoport at Michael.Rapoport@wsj.com
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