The New Revenue Standard — Are
You Still Assessing the Impact?
by Eric Knachel and Courtney Sachtleben, Deloitte & Touche LLP
As we move closer to the effective date of the FASB’s new revenue standard,1 we continue to
monitor the implementation status of public companies. Our June 5, 2017, Heads Up discusses
our observations from a review of SAB Topic 11.M2 (“SAB 74”) disclosures included in periodic
filings with the SEC by a sample of Fortune 1000 public companies.3 This Heads Up provides
updated observations from the second-quarter filings of our sample population and additional
perspectives for companies to consider in the final months leading up to adoption.
We note that companies are making progress on their implementation efforts, with
approximately 10 percent of our sample disclosing that they are “substantially complete”
with their evaluations. Further, more than half of our sample registrants provided expanded
or updated disclosures as compared with their first-quarter filings. Despite this progress,
the disclosures also indicate that substantial work remains, with 90 percent of our sample companies disclosing that their implementation efforts are ongoing. In addition, as
indicated in Figure 1, only slightly better than half of our sample companies have provided
any quantification of the standard’s impact (i.e., stated that the effect will be immaterial or
quantified some or all of the impact upon adoption).
Figure 1: Quantification of Impact
Companies should be mindful of the important information to be conveyed to financial
statement users through quantification of the impact that adoption will have on a registrant’s
financial statements. Although such disclosures should be subject to a company’s internal
control over financial reporting and disclosure controls and procedures, SEC registrants
should not be discouraged from providing their best estimate of the impact upon adoption.
At the 2016 AICPA Conference on Current SEC and PCAOB Developments, the SEC staff
observed that if a registrant discloses a quantitative impact on the basis of its best estimate
but the ultimate amounts recognized differ, the difference does not necessarily indicate a
control weakness if the cause of the change was information that was not available when
the registrant’s best estimate was developed. In the months leading up to adoption, such
disclosures will provide important information to users of the financial statements.
Method of Transition
One notable area of progress since the first-quarter periodic filings is in the method of
transition, with a number of companies electing a transition method during the most recent
quarter. Under the standard, entities can use either the full retrospective method or the
modified retrospective method. Figure 2 shows the selected transition methods indicated by
our sample companies. The majority of companies have elected the modified retrospective
method as of the second quarter, with only 11 percent still undecided.
Figure 2: Method of Transition
In a manner consistent with our prior reviews, we also considered certain qualitative
disclosures, including those related to:
The identification of affected revenue streams.
A comparison of current and new revenue policies.
Details of the implementation process and the status of implementation project plans
Generally, these disclosures were similar to those in previous periods, although, as noted
in Figure 3, we continue to see enhanced disclosure about which revenue streams will be
affected and a comparison with current policies.
Figure 3: Qualitative Considerations
In addition, as noted in Figure 4, we observed an increase in the number of companies
describing what their ongoing disclosure requirements will be under the new revenue
standard as well as the standard’s effect on their accounting processes and internal controls.
Figure 4: Other Considerations
Finally, we have also observed that the SEC staff has been commenting on registrants’ SAB 74
disclosures with respect to the new revenue standard. The following is an example comment
received from the SEC staff:
You state . . . that you continue to make progress in evaluating the impact that the amended
revenue recognition guidance will have on your future consolidated financial statements. We further
note your disclosures in the Form 10-Q appear to describe the approach you are undertaking in
your analysis of the standard, without providing an understanding of any known potential impact
or the current status of your evaluation. Please revise to provide qualitative financial statement
disclosures of the potential impact that this standard will have on your financial statements
when adopted. In this regard, include a description of the effects of the accounting policies
that you expect to apply, if determined, and a comparison to your current revenue recognition
policies. Describe the status of your process to implement the new standard and the significant
implementation matters yet to be addressed. In addition, to the extent that you determine the
quantitative impact that adoption of Topic 606 is expected to have on your financial statements,
please also disclose such amounts. Please refer to ASC 250-10-S99-6 and SAB Topic 11.M.
These comments are consistent with the SEC’s September 2016 staff announcement outlining
best practices for registrants to follow in the periods leading up to the standard’s adoption.4
Because of the importance of revenue to users of the financial statements, we expect the
SEC staff to continue to monitor registrants’ implementation efforts, including their SAB 74
FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, as amended. For calendar-year-end
public business entities and other entities that elect early adoption, the standard’s effective date is less than six months away. See
Deloitte’s A Roadmap to Applying the New Revenue Recognition Standard for a comprehensive discussion of the new standard.
To further understand how companies are considering the SAB 74 requirements, we reviewed the disclosures in periodic filings
associated with the calendar year-end and the first and second calendar quarters of a random sample of 100 companies from the
Fortune 1000 group that did not early adopt the new revenue standard.