Good news for companies adopting retrospective approach to new FASB revenue recognition standard

by Cydney Posner

One of the critical questions that companies are facing under FASB’s new revenue recognition standard is whether companies that elect to follow a retrospective approach (applying the standard to both current and prior years — e.g., 2016 and 2015 revenues in addition to 2017) will be required to restate all five years of data in the selected financial data table or whether the SEC staff will provide relief on those disclosure requirements.  (See these posts.) Now, according to this article in Compliance Week, in recent meetings with FASB, the SEC staff has indicated that companies electing to adopt a full retrospective approach will not be expected to restate the entire five years of data in the table.

The article quotes a representative from the SEC’s Office of the Chief Accountant that Corp Fin “’will not object if the retrospective application only applies in selected financial data to the years that are included in the audited financial statements…So any additional years included in selected financial data will not need to be retrospectively restated.’ Disclosure, however will be paramount, she said, so investors understand the inconsistency.” The article reports that, for companies electing to adopt the cumulative method (applying the standard only to 2017, which would involve some adjustments to deferred amounts as well as disclosures regarding the absence of  comparability), the exception will not apply, and the SEC would expect the five-year selected financial data table to be consistent with the audited financials.

Apparently, the staff is trying to be more proactive in anticipating concerns (including reviewing draft firm guidance upon request), with the goal of identifying “implementation issues early to steer practice toward consistent interpretations. The staff also is considering whether the SEC should make any changes to its own regulations on revenue recognition or whether it might be necessary to rescind or revise any staff guidance on revenue recognition.”

 

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