September 21, 2018

The New Revenue Recognition Standard Needs a Sexy Nickname, Okay, Sure

new revenue recognition ASC 606

Perhaps I’m reading too much into it, but this guy thinks everyone needs to start freaking out over the new revenue recognition rules:

“Revenue recognition feels like a big, big issue,” said Zuora CEO Tien Tzuo, whose company specializes in software for managing subscriptions. “This feels as big or bigger than Y2K or SOX. SOX was a big heavy cost, but it wasn’t like you were in danger of missing your earnings call, or you had to report earnings that differed from expectations, not because anything changed in your business but because of accounting standards. We should be a little worried. There’s a surprise looming when earnings season kicks off at the start of next year and I don’t think we’re ready for it.”

Back in June we learned that more than one-fifth of companies admitted that they weren’t going to be ready. Here we are, three months later, and Tzuo’s concerned that there’s still not enough urgency. Naturally, he has a solution:

Tzuo suggested it might get more attention from companies if it had a catchier name.

“When we say things like ASC 606, the problem is you just don’t have an Enron, a Y2K,” he said. “ASC 606? I don’t know what you’re saying. We’ve got to give this thing a sexier name. It should be called ASC 666.”

I think he’s onto something. Giving anything an END TIMES twist will always get people’s attention. Just look at all the press this quack is getting for saying that “the beginning of the end of the world as we know it” will commence on Saturday. If he’s right maybe FASB will call the whole thing off. No one is going to care about the deliverability of a contract if the Tribulation is going on.

[AT]

Image: William Blake/Public Domain

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Why Do the FASB and IASB Always Insist on Mission Impossible?

Can anyone explain why accounting regulators have the annoying tendency to see a HUGE problem and insist on fixing it when the logistics are seemingly impossible to overcome? It’s commendable to try and solve big problems but it seems that the geeky egos of accountants often get in the way of reality.
CFO.com has a story about the FASB and IASB’s “dream” to get accounting standards down to one model for revenue recognition. ONE!
According to the article, the FASB’s revenue recognition rules are currently spread among 100 standards, so obviously there’s room for improvement but shrinking all that down to one model? Talk about herding cats.
We’re not hating on the standard setters (well, let’s face it, maybe a little) for considering this task but these dweebs can’t even get on the same page re: convergence timing so we’ll be taking the overs on the number of years when this single model pipe dream actually gets off the ground.

Revenue Recognition: Will a Single Model Fly?
[CFO.com]

In Non-iPad Apple News, A Look at Earnings Under New Accounting Rules

Editor’s note: This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for corporate finance executives.

Yes, yes. There’s plenty of iPad talk going on out there but we’ll resist the urge and focus on the numbers here.

Ron Fink wrote back in September about concerns over new accounting rules for revenue recognition doing little more than providing more areas of confusion for investors.

Under the new rules, companies can book revenue based on estimated sales prices for all the components of “bundled deliverables” all at once instead of on their current fair value. The expectation is that the rule will boost upfront earnings for tech companies whose products combine hardware and software.

Well, on Monday night, Apple made its first quarterly earnings report under the new rules and they certainly gave the tech darling a boost, but it’s unclear whether it will ultimately confuse investors. Indeed, they were likely distracted by Apple raking in $3.4 billion in net income for the quarter ended Dec. 26, up 50 percent from a year earlier.

Apple went to great lengths to explain the effect of the rules on its financial statements. The company revised its financial statements for each quarter from fiscal 2007 through fiscal 2009, the period it’s been selling both the iPhone and Apple TV, which it had previously used subscription accounting for because it periodically provides free software upgrades and features for them.


Under subscription accounting, revenue and associated product cost of sales for iPhone and Apple TV were deferred at the time of sale and recognized on a straight-line basis over each product’s estimated economic life of 24 months. This resulted in the deferral of significant amounts of revenue and cost of sales related to iPhone and Apple TV. The changes had the effect of slimming the company’s balance sheet considerably. Assets at the end of its fiscal year 2009 were reduced by $6.4 billion and liabilities were cut by $10.2 billion, giving a $3.8 billion boost to shareholders’ equity.

And in reconciling its first quarter 2009 to the new accounting standard, Apple showed net sales got a nearly 17 percent boost, while its cost of sales went up just 11 percent. That had the effect of stretching gross margins from 34.7 percent to 37.9 percent.

Apple, which wasn’t required to adopt the new rule until the first quarter of its fiscal 2011, certainly is not objecting to the change. In its earnings conference call Monday, CFO Peter Oppenheimer said, “We are very pleased by the FASB ratification of the new accounting principles as we believe they will better enable us to reflect the underlying economics and performance of our business and therefore we will no longer be providing non-GAAP financial measures.”