Study: New Revenue Recognition Standard Might Slow IPOs in 2018by
It’s no secret that companies have dawdled in adopting the new revenue recognition standard. But a new study by Deloitte reveals that initial public offerings (IPOs) may suffer as a result.
Why? Because the new standard, ASC 606, will apply to all public companies for reporting periods after Dec. 17. Although nonpublic companies have until the end of next year to put the new standard in place, companies in the IPO process are subject to the public company deadline at the time of their IPO, Deloitte states in a public release.
Under the JOBS Act, some emerging growth companies with annual gross revenues of less than $1 billion undergoing an IPO can choose to delay adopting the new standard until the private company deadline, Deloitte states. But Deloitte also notes that doing that could put companies at a disadvantage to public companies that have already adopted the standard.
“The gap in deadlines and the slow pace of implementation at many private companies could portend a further slowdown in the IPO market in 2018 as companies scramble to implement the new revenue standard,” said Bernie De Jager, audit and assurance partner and West region accounting and reporting advisory service leader for Deloitte & Touche LLP. “Implementation of the new revenue recognition standard is a marathon, not a sprint, as it impacts not only finance and accounting, but also requires collaboration among multiple organizational functions, including information technology, sales, tax, human resources, and others.”
The Financial Accounting Standards Board (FASB) has been working with the International Accounting Standards Board (IASB) since 2014 on setting a standard on revenue recognition of contracts with customers.
According to a Deloitte poll of about 3,000 executives in accounting, tax and finance primarily from private companies considering IPOs, only 8 percent indicated that their companies have implemented the revenue recognition standard.
Here’s a snapshot of the survey’s findings.
- 60 percent of the respondents said they have not begun implementation of the standard or have only done an initial assessment.
- But 53 percent said IPO activity will increase modestly (46 percent) or substantially (7 percent) in the next year.
- 83 percent of respondents said it takes 12 months (40 percent) to 18 months (43 percent) prior to the IPO to put in place the structural and operations changes needed for a public offering.
- 49 percent of respondents said media, technology and telecommunications industries would attempt the most IPOs.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.