changes in revenue recognition
changes in revenue recognition

Changes in revenue recognition guidance

It's game time. Is your M&A team ready?

In May 2014, the FASB and IASB issued a new revenue recognition standard, replacing nearly all existing revenue guidance under US GAAP and IFRS. The date for adopting these new rules is fast approaching. While accounting teams are well aware of these new rules, it is important for deal makers to also understand how these new requirements will affect their future deals. There are implications for conducting due diligence, modeling, integration and value creation

Keeping these new rules in mind, there are several steps deal makers can take to increase deal success:

  • Do not assume that your next target has completed an adequate assessment or begun its implementation—you may need to augment your own deal team to meet the new requirements;
  • The new standard primarily impacts the timing of revenue recognition and acquirers may need to adjust their models and consider impacts on deal economics;
  • Know that where a target stands in its implementation efforts may impact an acquirer’s integration plan and value creation plan;
  • And the good news--understand how to leverage the potential upside of the new rules.

State of readiness

Although these new rules have been discussed for years, the effective date is fast approaching. The new standard becomes effective January 1, 2018 for calendar-year-end public companies and January 1, 2019 for calendar-year-end private companies. Early adoption on January 1, 2017 is permitted.

Implementation can take several months or longer and can come with significant financial cost, particularly if IT systems are impacted. Many private companies have not yet begun the time- intensive process of assessing the effects and complying with the new standard. In our 2016 survey, almost 80 percent of respondents said they were still assessing the potential impact of the new standard or, in some cases, had not yet begun an assessment. They described facing resource constraints, competing priorities, and areluctance to commit the required budget.  

Implications on your next deal

For your next deal, consider that thesechanges may impact the target’s financial performance and operations soon after you take ownership. This will affect how you carry out diligence, model future performance, and plan for integration or exit. Here are four steps you can take to increase your success.

To learn more about the changes in guidance, download the full whitepaper below.

Changes in revenue recognition guidance
It's game time. Is you M&A team ready?