In determining which transition option is most suitable, companies should consider and evaluate the following factors:
- Significance of changes in accounting: Companies will need to assess the impact of the new standard on reported revenues as compared to legacy GAAP. If the impact of the new standard is high, then the cumulative effect method may significantly affect trend data. In this circumstance, companies may consider using the retrospective method to enable users of the financial statements to better understand the revenue and profitability trends on a consistent and comparative basis.
- Availability of historical information: Companies should consider the availability of information needed to transition to the new standard. Some factors may include, but are not limited to, whether the information is generated from existing systems or manual processes, any previous changes to the systems, processes to collect data and whether new information is required.
- Contract structure and volume of contracts: The transition option selected will be directly impacted by the number of open contracts, the average duration of each contract and the degree of consistency in contract terms and conditions.
- Disclosure requirements: Companies will apply the disclosure requirements of the new standard to all periods presented. If an entity elects to apply the retrospective method, it will apply the new disclosure for the initial year of application and all comparative periods.
- Systems and processes: Regardless of the transition option, companies will need adequate processes and controls to ensure that the information used to comply with the transition requirements is complete and accurate. Companies may also want to consider the cost and time frame for designing and implementing these processes and controls when assessing the transition methods.
- Comparability of information: The comparability of information from one period to another will be important for both internal and external stakeholders. In addition, companies should consider which transition option their peers are planning to select as it may be important to follow the industry norm.
Companies — including those in the lottery and gaming industry — must keep in mind that the selection of the most appropriate transition option will have a significant impact on the extent and timing of this change. In order to ensure that the transition is implemented in an efficient and effective manner, companies should start assessing which transition option would be most suitable for their operations given the impact of the quantitative and relevant qualitative factors.
While the new standard officially takes effect in January 2017, preparers must remember that early preparation, including an effective implementation and stakeholder engagement plan, is the key to successfully operating under this new framework.
To learn how to ensure your organization is prepared to meet the new guidelines for revenue recognition, contact Lesley Luk (firstname.lastname@example.org), Senior Manager, Technology, Media & Telecommunications (TMT), KPMG and visit www.kpmg.ca for more information.