Volume 26, No. 7

S&P 500: Expected Effects Of FASB’s New Revenue Recognition Standard:  Simply stated, the first batch of “Star Wars” movies were a world-wide cultural phenomenon. Fans waited eagerly for each new installment between 1977 and 1983. After the last piece of the first trilogy was released, a long drought ensued for the faithful - no Star Wars movies for them until 16 years elapsed. For their patience, what did they get in 1999? The beginning of a prequel trilogy that didn’t even come close to matching the expectations of fans and critics. When that trilogy was completed in 2005, fans were subjected to another ten-year drought - and they were rewarded in 2015 with a kick-off to a new sequel trilogy that promised to rekindle the original series’ magic.

 It’s just like that with the FASB’s new revenue recognition standard. When it goes into effect at the beginning of 2018, over nine years will have passed since the first public comment document was issued - which was after several years of debate between the FASB and IASB. It’s safe to call it the most important joint project ever between the two standard setters, because revenue is the largest number on the income statement, and can have the most profound effects on profitability. Until this standard was issued, there was no single blockbuster standard governing revenue recognition.

 Will it live up to the hype offered by the Board and most observers of the accounting scene, and deliver “The Force Awakens?” Or will the hype be overblown and investors will receive “The Phantom Menace?” It’s impossible to say at this point, but firms are starting to release “trailers” - disclosures about the expected effects of the new accounting standards. In this report, we look at nothing but the trailers - and hope for the best.


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