Last week, PwC hosted its “Spring 2018 Revenue Recognition Bootcamp,” a bi-annual event held here in Silicon Valley. Tensoft COO, Dan Berube, and I have been taking turns attending, and have found it to be an invaluable way to keep up with all of the changes to both the revenue recognition standards and how these are being put into practice. The following are some of my thoughts on this year’s event.
The recent changes to revenue recognition standards (ASC 606, IFRS 15) have ensured a large attendance at these events the past few years, although the numbers have certainly decreased from what they were when the initial changes were first announced. My guess is attendance was down by a quarter from the last time that I attended, but this is still a very well attended event. PwC makes a serious commitment to this event, with about twenty presenters – many of them partners – covering a broad range of topics. They explicitly discussed continued interest in these events as ASC 606 updates, since knowledge and comfort about the requirements for ASC 606 has increased.
I’m sure that many companies are still negotiating and revising their revenue recognition policies, and running into unexpected complexities. However, from a combination of the views expressed here by PwC and anecdotal information from Tensoft customers and prospective customers, it appears that finance departments are now much more comfortable with how they address and respond to lot of the new requirements.
The reason for that is that some of the things that were causing panic early on are now fairly settled, or are not as big a deal. For example, requirements around pre-paid multi-year contracts looked particularly onerous if you needed to allocate a portion of the sales contract to interest revenue. ASC 606 says that you need to extract the financing or interest component of that and treat it as a separate delivery item, a separate revenue stream. While some companies have been doing that all along, most were not.
However, the “as applied in practice” results show that this is not the change that was initially expected. In fact, one of PwC’s slide showed an interesting outcome related to how major corporations are now handling this requirement for multi-year contracts. Out of something like 30 major corporations who have these types of agreements – and who reported to the SEC about it – only one of them is separating out financing or interest as described above. The other 29 have all found reasons why they don’t need to do it and why it’s not “material to their business.”
On the other hand, areas like variable consideration and sales contract change became bigger deals than initially expected. Although those areas may have been sort of overlooked at the start, they’ve become bigger issues in terms of compliance complexity than other areas. It’s an interesting transition. Over the years, we’ve seen quite a shift in the flow of where the concern areas are versus where the effort areas are.
To be continued. Stay tuned for Part II….