80% of CIOs think finance and IT are collaborating effectively to deliver systems and process changes, while only 68% of CFOs concur.

CFOs and CIOs are focused on relevant challenges for their respective functions. CFOs think that a critical challenge lies with educating internal and external stakeholders, including delivering effective communications and training. CIOs see delivering changes across global or decentralized organizations as a critical challenge for success moving forward.

John McGaw, EY Americas Accounting Change Leader, says, "The competing perspectives between CFOs and CIOs reflect their different approaches to the implementation of the new revenue recognition standard.  The results shine a light on the importance of internal alignment among finance, IT and other functions, as well as with internal and external audit teams."

EY surveyed 300 finance and IT leaders from US-headquartered public companies across multiple industries, with annual revenues ranging from $1 billion to more than $10 billion, in March 2017 to highlight the key challenges and opportunities associated with revenue recognition accounting standards changes.  

According to CFOs, more than 70% of companies do not yet have their revenue recognition programs complete.  CFOs also report that more than one third of companies are experiencing challenges and are at risk of falling behind schedule, including 14% of companies who have not yet begun.  The top five reasons cited by those who believe their program is at risk include:

• insufficient allocation of people resources (51%)

• lack of change management capability (46%)

• challenges interpreting the standard's technical requirements (44%)

• difficulty collecting required data (42%), and

• insufficient financial resources allocated (42%).

From a human resource and financial investment perspective, 48% are hiring more people and 40% making extensive use of consultants to fill the gap.  And, costs are being revised upward; 54% have seen their revenue recognition budget increase since the program started. 

Despite many challenges, 47% of respondents say their programs are on track and are fully confident of meeting critical milestones, and an additional 14% say their programs are ahead of schedule.

McGaw continues, "Revenue recognition changes pose significant finance, technology and operational challenges for companies.  Those that take a strategic approach can actually drive improvements across their systems, processes, controls and operating models. Those that are late to required implementation activities, however, will likely struggle to keep up and miss out on the opportunity to uncover broader business benefits."  

Data and IT requirements are cited as more difficult than accounting changes; manual workarounds are being used to achieve compliance

Nearly half of companies are planning system changes specifically for revenue recognition.  However, CFOs and CIOs agree that assessing and making systems changes is a significant challenge.  In fact, almost 70% say so, compared to 63% who identify developing the new accounting policies and procedures as difficult. Also, 45% of companies implementing or upgrading to a new system are having difficulties and are concerned about not having a fully-functioning system in place for the deadline. Companies that cannot implement automated systems will likely develop manual workarounds to comply, and even those who implement new systems will likely have to make judgments and estimates outside the systems.

McGaw says, "In order to fulfill their financial reporting and disclosure responsibilities, companies should focus on assessing risks and implementing controls to address them. Controls over data should also be in place whether a company uses new systems or manual workarounds."

Companies missing opportunity for business transformation

Management agrees that the changes companies will likely need to make to implement the new revenue recognition guidelines provide an opportunity to go beyond compliance and could result in business transformation.  And although 61% of the EY Revenue Recognition Survey respondents say changes are an opportunity to drive transformation, 43% report that they are too focused on getting the new standard's financial reporting and disclosure tasks completed to be able to unlock broader business benefits.

More than 50% of respondents cite the burden of legacy IT and systems complexity as a barrier to unlocking broader business benefits from accounting change.

CFOs specifically name improved data quality and data-driven insights, strategic cost reduction, and identifying tax efficiencies as the top transformation opportunities. 

McGaw says, "To move forward effectively, companies should identify delivery challenges and ensure finance and IT are on the same page.  They should also  plan for and secure appropriate financial and people resources. The opportunity for transformation is still there, but achieving compliance should be the top priority. With the leasing standard change following closely behind, companies should shift gears quickly and apply the lessons learned from revenue recognition implementation."