Publicly-traded firms have had years to prepare for adoption of Accounting Standards Update 2014-09,“Revenue from Contracts with Customers (Topic 606). “Go time” is at hand: calendar year end firms start reporting under its requirements on January 1, 2018.
While long required by the SEC to report anticipated effects of the standard, firms have sparsely disclosed details about its expected effects. If the standard is as revolutionary as portrayed by the FASB and the Big Four accounting firms, investors would want to know about the material impacts it will bear on revenues and profitability. A survey of 369 S&P 500 firms adopting it in 2018 showed that only a handful expect a material impact from the standard. About 57% disclosed nothing about material effects, while about 41% declared there would be no material impact.
The evidence paints a conflicting picture. If the standard is as groundbreaking as advertised, then firms are delinquent in informing investors. If it’s built into their 2018 earnings guidance, they shouldn’t be shy about putting it into print. If firms disclose little because ASU 2014-09 packs no impact, then the standard is over-hyped. 2018 will tell the story.