Jessie T. Kanter is the quality assurance manager of BlumShapiro’s Providence office responsible for the quality control of the audit practice. BlumShapiro is the largest regional accounting, tax and business consulting firm based in New England, with offices in Rhode Island, Massachusetts and Connecticut.
Kanter is a certified public accountant with 15 years of experience in the accounting and audit profession. Prior to joining BlumShapiro in 2013, Kanter worked at Kahn, Litwin, Renza & Co., CBIZ Tofias and PricewaterhouseCoopers.
She is a member of the Rhode Island Society of CPAs and the American Institute of CPAs. She serves as treasurer of Project Undercover, Inc., board member for Friends of the Family Literacy Center of Lincoln and secretary of Lincoln Central Elementary’s PTA.
Kanter has a bachelor’s degree in accounting from Husson University.
PBN: The increasingly global nature of business has made it important to ensure that financial information from countries around the world can be compared according to common standards. The Financial Accounting Standards Board and the International Accounting Standards Board have issued an update that creates new industry specific guidelines on “Revenue from Contracts with Customers.” What is the single most important change that came from the update?
KANTER: While there are a number of important changes as a result of the updates made by both the Financial Accounting Standards Board and the International Accounting Standards Board, the most significant change that will impact the thought process of preparers of financial statements and the users of financial statements is the change to a contract-based approach to revenue recognition. The revenue recognition process, under both the Financial Standards Board and the International Accounting Standards Board, relies heavily on the contract between the parties. In addition, businesses across all industries will apply this standard, and industry specific guidance has been superseded by this standard.
PBN: The update includes guidelines related to determining the transaction price. How does that impact businesses?
KANTER: For many businesses, the determination of the transaction price should not change significantly from current practice as a result of these changing standards. There are some changes related to determining the transaction price related to certain discounts, rebates or incentives given to customers, just to name a few. The basic premise is to limit revenue recognized to an amount that is not likely to be reversed in the future. In addition, if there is a financing component, then the time value of money (interest) must be taken into consideration for contracts that are in excess of one year.
PBN: Does the update require changes in financial statement disclosures?
KANTER: Yes, as a result of the update, there will be additional financial statement disclosures required related to recognition of revenue. The overall goal of these disclosures is to provide more information to the users of the financial statements so that they can better understand the amounts, timing and judgments involved in the entity’s revenue recognition process, including related cash flows. Some examples of additional disclosures are the disaggregation of revenue into categories that depict the nature and uncertainty of revenues, reconciliations of contract balances, amounts allocated to performance obligations not yet settled under the contracts and other qualitative disclosures, such as judgments used by management.
PBN: When does the update go into effect? What should companies be doing now in order to comply with these changes? Are there certain industries that are more impacted than others?
KANTER: The effective date of adoption is for annual reporting periods beginning on, or after, Dec. 15, 2016 for financial statements prepared under U.S. standards for public entities, as defined in the standards. Non-public entities receive a one-year deferral – Dec. 31, 2018 for calendar year ends.
Businesses should start planning now for these changes, as it may result in changes in processes, internal controls, accounting systems and a general way of thinking about revenue recognition. Businesses should identify an internal expert in their accounting and finance department to lead the project for the entity and seek additional support from their accounting and audit firm as needed.
Certain industries have been identified as being more impacted than others in various seminars and articles related to this topic. Among the more affected industries are the automotive, construction, software and telecommunications industries.
PBN: How much of an overall impact do you see this update having on Rhode Island businesses?
KANTER: All businesses will be impacted in some way by this new standard. Some will be impacted more than others. If an entity has a relatively straight-forward revenue recognition process, their revenue recognition will probably not change significantly. However, they will still be subject to the added disclosures in the financial statements. For entities with multiple lines of business, contracts that include variable consideration, or entities that have long-term contracts, the change will be more significant.
Quality assurance manager of BlumShapiro’s Providence office talks about a recent update from Financial Accounting Standards Board and the International Accounting Standards Board.