Transition Methods to Consider When Implementing The New Revenue Recognition Standards

There are several methods to transition: full retrospective or modified retrospective.  Full retrospective restates all prior periods included in the financial statements.  Modified retrospective allows you to report 2018 under old GAAP and 2019 under new GAAP. However, you need to disclose 2019 information under old GAAP.  Both of these methods require you to calculate one year under two different methods.  The other option is not issuing comparative statements for 2019.

What do you need to consider when implementing the new standards and how the transition will be reported in the financial statements? In order to determine the most appropriate transition for your organization, you will want to ask yourself:

  • Do you want to issue comparative statements which requires reporting one year under two methods?  If so:
    • Do you want to use the full or modified retrospective approach?
    • How will you go about restating 2018 under the new method or calculating 2019 under the old method?
    • What are the additional costs and required resources?
  • Will the users of the financial statements accept a single year statement for 2019?  (Talk to the bankers and bonding companies now to get their blessing!)
  • If single year statements are not an option,
    • Will the users of the financial statements allow a GAAP departure to report under the modified retrospective approach but exclude the disclosures for 2019 under the old method? 
    • If not, circle back to the first bullet point above.
  • Who is going to calculate the adjustment to beginning equity and when?

Entities should consider the benefits of each method as well as the costs of implementation. KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition and determine which method is right for your organization. If you have any questions about this information please contact your KatzAbosch representative; or contact us by clicking here.

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