The Center for Audit Quality (CAQ) recently released a new publication, Preparing for the New Revenue Recognition Standard, A Tool for Audit Committees, designed to help audit committee members fulfill their oversight responsibilities. This publication comes on the heels of the SEC Staff’s heightened encouragement to companies and their audit committees to address the impending effectiveness in 2018 of the new revenue recognition standard, ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Many companies will need to determine the impact based on 2016 financial information and all companies are required to provide meaningful transition disclosure. Audit committees will play a key role in overseeing the potentially significant implementation efforts of the new revenue recognition standard. In recognition of this, and based on key messages from regulators, the CAQ has developed and published its tool for audit committees.
The publication provides important questions for audit committees to ask of management related to the company’s implementation efforts:
• Understanding the New Revenue Recognition Standard - What Is It? This section provides a brief overview of the standard’s core principles. To assist in their understanding of these core principles, audit committee members should ask management to explain the standard and how it affects, or does not affect, the company.
• Evaluating the Company’s Impact Assessment - How Will Revenue Recognition Change? This section provides a list of specific questions and general advice to help the audit committee discuss management’s impact assessment of the new standard in light of the company’s business.
• Evaluating the Implementation Project Plan - How Do We Need to Prepare? This section provides a list of questions designed to assist audit committees in understanding and evaluating management’s implementation project plan. Included among the list are questions regarding plan milestones, progress updates, views of external auditors and third-party vendors on management’s implementation plan, experience level of the accounting team, accounting judgments, systems and controls and tone at the top.
• Other Implementation Considerations - What Else Do We Need to Consider? This section provides helpful questions audit committees may ask in overseeing various other considerations, such as new disclosure requirements, transition methods, as well as key policy decisions to make in advance of adopting the new standard.