The $360 Billion Question
Companies in the S&P 500 have about $360 billion of so-called deferred revenue on their books. Here’s why you care:
On Jan. 1, 2017, sweeping accounting rules will force many companies to change how and when they book sales. They would affect how auto makers account for car sales and telephone companies account for mobile-phone contracts.
CFO Journal on Tuesday outlined the challenges companies and their finance teams will face as they work to comply.
The rules, part of an international effort, are designed to make it easier to compare financial performance with global competitors.
The Financial Accounting Standards Board received roughly 1,400 comment letters – many companies are asking for more time and more guidance.
Others, meanwhile, say they will be ready and any delay will unfairly punish them unless they are allowed to adopt the changes on schedule.
The new rules “will represent a change for many industries,” said Christine Klimek, a FASB spokeswoman on Monday. “There are bound to be questions. The answers to most of those questions can be found within the standard itself.”
FASB and the International Standards Board will decide whether to delay the rules early in the second quarter. Watch this space for updates.
CLO | Mergers & Acquisitions | Commercial Transactions | Corporate Compliance
10 年Paige Mercer
Non Profit Org and Family Business
10 年Apologies! This comment is not relevant! It is on here by mistake.
Non Profit Org and Family Business
10 年This is not simple because anything the president attempts to do will be and is always handed at once over to the spin doctors of the right wing( republican has no meaning anymore- cynical and pandering to corporate interests is all.They are readily playing out the vestiges of non changing racist mentalities. Sadly the most important resource we have for the next generations IS OUR CHILDREN. The "no big government " ppl pleasing tactic these cynics take is a lie...in fact when did these politicians ever care about the entire country? Never. Seems to me that Canada and Dennark have not fallen off the map. It's become a media circus. By making "liberal" a dirty word while technology advances, fascism and a Post Orwellian Fascist regime seems almost inevitable. Yes we should pay taxes for our own children maybe not so much to support a falsified Haliburton based Oil War. The (????) Patriot act was one more example.
Principal/Partner @ Deloitte Consulting | Strategy, Finance, Transformation
10 年This tax discussion is purely on deferred revenues retained as liability in the financial statements. Let us take an example to understand this better. Assume a company wins a $ 100 MM contract for services (straight line written down method for simplicity) intended to be delivered across five years from the day of signing. The company cannot realize the $ 100 M on the day the contract is signed. The company makes an accrual at the start of every financial period at by the end of that period the company will amortize what was realized ($ 20 MM in our case) and register that as revenue. The same example can be applied to tangibles (hard assets and not services). Example Ford wins a contract to deliver 100,000 trucks to say South Africa over five years. They can only realize the revenue in the income statement based on the delivery schedule. I appreciate the need for regulation and accountability but this is just taking competitive advantage away from American companies. There are accounting systems that need to be updated, financial statements that need to be restated, Street and investor notification, employee training and projections redone (sales / revenue / profits / EPS et al). This will also lead to changes in incentive schemes of how and when sales professionals are compensated. These take time and not to forget most of these companies deal in cross-border commerce (just like Ford in our example above): that requires hedging and forward contracts in this volatile climate with rampant fluctuations. I am not saying these taxes could not be backdated and collected but planning and execution of a long-term change take time and requires ample heads-up.