On Wednesday, February 13th my group discussed Priceline.com, its main businesses and the way this company chooses to report its revenue. During our presentation we mentioned regulations and guidelines provided by the SEC on the matter of what methods could be used when it comes to the revenue recognition. I decided to write a blog in regards to the recent developments in the new regulation implementations. After reading an article “Revenue recognition: time for early-stage planning”, I would like to share with the rest of you some recent developments in regards to the revenue recognition regulations.
According to the article, even though the final corrections to the current rules haven’t become official yet, it is important that the company across all industries begin preparations for the upcoming changes by reviewing its existing long-term contracts, studying new models and figuring out potential implementations on the business, as well as planning for the potential expenditures that the new regulations may bring.
In accordance with the FASB new proposal, “The standard is being designed to facilitate global comparability as well as consistency in reporting between industries. It also will result in a significant decrease in the industry-specific guidance that U.S. companies are used to”. The article mentions potential benefits and flaws the new regulations bring to the table. In my opinion, while it will be easier for the financial analyst to find his way around the statements provided by the companies across multiple sectors due to lack of diversity in reporting, it will become more difficult to recognize specific features that a particular sector may possess.
The article mentions a perfect example, which supports my concern. Currently, telecommunication companies across the board offer discounted handsets when the customer resigns the membership contract and/or is eligible for an early device upgrade. At this stage, the way the revenue gets reported should contrast the way it would get reported should the company sell the device at full price. While the editor of this article believes that the upcoming changes are inevitable and the companies should just prepare for them accordingly, I believe that a strong case may be made in support of introducing general regulations within each sector instead of applying them across all of the industries. That way it will become easier to compare similar companies without affecting the reporting for companies in other sectors.
For those that are interested in pursuing future career opportunities within the accounting firms it may be useful to keep up with the developments regarding revenue recognition regulations considering that those changes should affect an entire industry. I hope that this article will help shed some light on the revenue recognition rules for those of us that would like to stay up to date on this important aspect of financial accounting. The link for the article can be found below.
Article: http://www.journalofaccountancy.com/News/20137165.htm
