New rules will overhaul the way businesses record revenue on their books, capping a 12-year project that will affect companies ranging from software firms to auto makers to wireless providers.
The new standards, issued jointly by US and global rule makers, will take effect in 2017, prompting a broad array of companies either to speed up or slow down the rate at which they book at least some of their revenue. The rules aim to simplify and inject more uniformity into one of the most basic yardsticks of a company's performance - how well its products or services are selling.
"It's one of the most important metrics for investors in the capital markets", said Russell Golden, chairman of the Financial Accounting Standards Board, which sets accounting rules for US companies and collaborated on the new rules with the global International Accounting Standards Board.
Companies were cautious in assessing the potential impact of the overhaul, but some were optimistic. "We've been waiting for it for a long time", said Ken Goldman, chief financial officer of Black Duck Software Inc., a provider of software and consulting services. "This levels the playing field and takes a lot of the ambiguity out of what are overly restrictive rules." The rules are designed to replace fragmented and inconsistent standards under which companies in different industries often record their revenue differently and sometimes book a portion of it well before or after the sales that generate it.
But the new rules could make corporate earnings more volatile, accounting experts said, by changing the timing of when revenue is recorded. They also could lead to increased costs for companies as they seek to track their performance while providing the additional disclosure the new standards require.
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