Remember Y2K? Prophets of doom envisioned catastrophic scenarios ranging from a banking collapse to nuclear reactors going haywire. The Washington Post reported the US spent $100 billion to prevent a Y2K meltdown. And what happened on January 1, 2000? Almost nothing. The Year 2000 bug barely left a mark. Is that because of the spend? Hard to say. But for sure it made some people very rich.
Is the same true for the new FASB/IASB revenue recognition accounting standards? There are certainly similarities in the build-up to the “Day of Reckoning” with dire warnings of the potentially calamitous devastation that may result if companies are not ready on time.
Yet is the panic justified?
In a previous blog, I discussed a new white paper showing that the new rev rec guidelines will have minimal impact on many subscription-based businesses. Proformative states that: “The subscription business model differs from a license of software model or retail purchase…Businesses that rely on subscriptions …are accustomed to recognizing revenue as they deliver services to their customer.”
The financial experts at Proformative, however, do not ignore the new guidelines. Far from it. As the white paper notes, “There is a demand for greater transparency, clearer disclosures, and more judgment calls.” So, although Proformative belittles the scaremongers, the report does caution that businesses should seek counsel with a rev rec expert to understand the impacts on their business, validate their approach and prepare for interactions with auditors.
View the full white paper: “Understanding the New Revenue Recognition Accounting Standard for What Is – and Isn’t."
Also, take a look at our new infographic: "Don’t Panic: The New Revenue Recognition Standards Aren’t So Scary."