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3 Reasons to Adopt Revenue Recognition and Lease Accounting Standards at the Same Time

Adopting both standards at once will seem daunting to many but, for those who have the resources, it may be worth it

This a busy time for corporate accounting teams. The new revenue recognition standard issued jointly by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), and the two versions of the lease accounting standards issued by the IASB and FASB, come into effect within a year of one another.

Among the many headaches this raises for senior accounting managers and the broader finance team, one is whether to adopt the two standards at the same time, which 25% of companies say they plan to do, according to CEB data (see chart 1).

The scale of the change will make simultaneous adoption too much of a daunting task for many teams but, for those that have sufficient resources and employees with high tolerance of complex change, it could be the more efficient route – a way of “ripping the band aid off,” and getting the worst of the work out of the way as quickly as possible (see chart 2).


Chart 1: Will your company adopt the new revenue recognition and the new lease accounting standards at the same time?  n=159 accounting executives  Source: CEB Webinar Poll, December 2016

 

Chart 2: If you plan to adopt the new revenue recognition and the new lease accounting standards at the same time, what is the primary reason for this decision?  n=68 accounting executives  Source: CEB Webinar Poll, December 2016


Reasons for Simultaneous Adoption

From talking with a range of accounting teams in CEB’s networks, they have one or more of three major reasons for adopting both standards at the same time.

  1. Limit rework in customer contract reviews: The primary reason companies are simultaneously adopting the new standards is to limit rework and improve efficiency from the overlap between them.

    Companies, for instance, that both sell and lease products (such printers, photocopiers, or automobiles) will benefit because they can review customer contracts containing both revenue and leasing arrangements at the same time and avoid duplication of efforts over two consecutive years.

  2. Minimize business disruption: Adopting both standards require changes beyond just the corporate accounting team, such as updating systems and controls, setting up cross-functional committees, and collaborating with business units. But some companies are pulling change forward in order to get it over with.

    Although this means a more intensive period of work, it has the advantage of being faster so employees return to a normal working environment sooner, reducing the risk of a longer-term drain on productivity.

  3. Reduce financial reporting risks: Certain companies may decide to adopt both standards simultaneously as it allows investors to compare changes in the financial statements for both the standards at the same time.

    Also, by adopting lease accounting early, some companies could avoid a few existing complex accounting requirements, such as a lessee’s involvement in asset construction and sales and leaseback transactions.

 

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