This article, "To Delay, or Not to Delay? That is the Big ASC 606 Question," originally appeared on BDO.com.
Okay, I have taken a few liberties with Shakespeare. But over the past several months, there has been a lot of dialogue and speculation among preparers, auditors and users of financial statements as to whether the Financial Accounting Standards Board’s (FASB) Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606), issued as a converged standard last year with the International Accounting Standards Board (IASB), will be delayed.
As it turns out, just last week, the FASB decided to issue an exposure draft to receive feedback from constituents on whether to give a one-year extension on the proposed effective date for ASC 606. In coming to this decision, the Board members and staff performed field visits to public and private companies, performed outreach with various stakeholders and conducted other research to judge whether the standard should be delayed to allow more time for all organizations (i.e., public and private companies, as well as nonprofits) to get prepared to implement the new standard.
If the FASB’s proposal for a delay is finalized, the revenue recognition standard would take effect in 2018 for calendar year-end public entities. For private entities, including nonprofits, it would take effect in 2019. The proposal itself is expected to be released soon with a 30-day comment period. Still, that does not mean nonprofit organizations should wait to consider the implications the standard will have, even if there is a postponement of the implementation date.
ASC 606, whether or not it is delayed, will be a major change for many nonprofit organizations. Some organizations will want to retrospectively adopt the new standard, and they will need to start gathering or preserving data for 2016. This means they will need to start looking at their organization’s policy, procedures and systems now—not in 2016. By then, it might be too late.
As a nonprofit starts to approach the implementation of the new revenue recognition model, it should be considering not only its accounting policy and procedures—which is a necessary first step—but also what it will need in terms of resources. This includes systems and people resources, processes and technology, and determining how other departments beyond the finance and accounting departments, such as development and program services, will need to be involved to make sure that the organization not only becomes compliant with the new standard, but also remains compliant in the future.
As FASB officials gather feedback from stakeholders, nonprofits should start preparing to implement, regardless of whether or not a delay is approved. But keeping in mind the impact that the new standard will have on nonprofits, we would advise that instead of delaying, these organizations use every minute and resource they have available to get ready. For timely information on transitioning to ASC 606 and applying it to your organization, visit BDO’s Revenue Recognition Resource Center here.
How do you think the new revenue recognition standard will impact your nonprofit organization? Do you believe your organization needs more time to prepare for implementation?