What does a Japanese Olympic Marathoner and FASB have in Common?
A Microscopic Step for (Business-) Mankind: FASB’s new revenue standard
In 1912, Shizo Kanakuri, a runner from Japan vanished during the Olympic marathon. There is some debate over his whereabouts and motivation that day -some accounts placed him at an outdoor party drinking while others claimed he strayed unconsciously into a banker’s cocktail party- but regardless, he ended up staying longer than planned and chose not to finish the marathon. He flew home the next day in shame. But the story didn’t end there because in 1967 Kanakuri flew back to Sweden and ran the remainder of the 1912 course. In doing so, his official race time went down in the books as 54 years, eight months, six days, eight hours, and 32 minutes. The slowest known marathon on record.
I bring this up in an effort to stay positive. I was looking for an example of something that’s slower than the FASB.
Last month, after ten years of elongated debate, the FASB issued new revenue recognition standards (specifically, update 2014-09). The bad news is that it’s long-winded and contains copious levels of complexity. Its three sections tally 700 pages. The good news is that companies have until December 15, 2016 to implement its requirements. And possibly the worst news of all is that it represents but the tiniest victory in the once-promising effort to converge international standards with US GAAP.
Even by the FASB’s own monolithic standards, the pace of this particular effort will go down as glacial. Christopher Cox, the former SEC commission chair is surprisingly angry. He was the architect of the 2008 roadmap proposal that would’ve allowed US companies the option of filing under IFRS by 2014. That possibility is now dead and Mr Cox is not mincing words. At a recent conference he said it was time to “bury the IFRS” and that “Full-scale adoption of IFRS in the United States might once have been possible, but it is no longer.” Those fatalistic words were driven by the reality that accounting standards have fallen miserably behind the needs of global investors.
In the end, the lone advancement of the FASB/IASB joint project was a converged standard for revenue recognition. And having sat in on nearly three hours of training already, this new standard will present numerous resource challenges as there is an increased emphasis on judgment and the use of estimates. For old-schoolers like me, the superseding of “cost of completion” is jolting enough, but the new methodology for determining contract revenue is where Update 2014-09 really takes it up a notch. It has alarming complexity. And though compliance may be several years away, when you throw in the new 2013 COSO requirements, an accounting department would do well to start the process soon. (Shameless plug: Fahrenheit Finance is here to help!)
Russ Gambrel CPA, Senior Consultant
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