Impact on your business
With implementation potentially impacting an entire organization, it is recommended that businesses form a cross-functional project team to assess the potential impacts of the new standard. Potential impacts for the lottery and gaming industry include (but are not limited to):
- Revenue recognition may be accelerated or deferred – Compared with current accounting, revenue recognition may be accelerated or deferred for transactions with multiple components or variable considerations. Key financial measures and ratios may be impacted affecting compensation arrangements, contractual covenants and other revenue sharing payments.
- IT systems may need updating – Lottery and gaming companies may need to capture additional data required under the new standard (e.g. data used to make estimates and support disclosures). Applying the new standard retrospectively could mean the early introduction of new systems and processes, and potentially a need to maintain parallel records during the transition period.
- New estimates and judgments will be required – This new revenue recognition standard introduces new estimates and judgmental thresholds that will affect the amount or timing of revenue recognized. Judgments and estimates will need updating, potentially leading to additional financial statement adjustments for estimate changes in subsequent periods.
- Accounting processes and internal controls will need to be revised – Companies will need processes to capture new information at its source (e.g. executive management, operations, marketing and business development) and to document it appropriately, particularly as it relates to estimates and judgments. Companies will also need to consider the internal control required to ensure the completeness and accuracy of this information – especially if it was not previously collected.
- Extensive new disclosures will be required – Preparing new disclosures may be time-consuming and capturing the required information may require incremental effort or system changes. There are no exemptions for commercially sensitive information.
- Entities will need to communicate with stakeholders – The various stakeholders will want to understand the impact of the new standard on the overall business –before the standard becomes effective. Areas of interest may include the effect on financial results, the cost of implementation, proposed changes to business practices, the specific impact on significant contracts and arrangements, and the transition approach.
Getting ready to transition
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. Look out for a future article on how to address The Transition Plan.
Lesley Luk is Senior Manager, Technology, Media & Telecommunications (TMT), at KPMG in Canada. To learn how to ensure your organization is prepared to meet the new guidelines for revenue recognition, contact Lesley at firstname.lastname@example.org, and visit www.kpmg.ca for more information.