Last year, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for accounting for revenue arising from customer contracts. When it becomes effective (for fiscal years beginning after December 15, 2016), the new standard will replace most existing revenue recognition guidance. Its goal is to provide consistency across all industries, many of which now operate under separate revenue recognition guidance and processes, and consistency between U.S. GAAP and IFRS.

Why should lawyers care (and why now)?

There are tempting reasons for legal departments to ignore ASU 2014-09, such as:

• It’s accounting, not law, right?
• It’s not effective until 2017 and can’t be adopted early. That’s a long time from now.
• We already disclosed in our 10-K that the adoption of ASU 2014-09 “may impact our financial statements” and that “we are currently evaluating implementation methods and the extent of the impact that implementation will have upon adoption.” Isn’t that enough?

But in fact, there are a few things to be aware of right now:

• Although the new revenue recognition standards apply to the 2017 financial statements, most companies are expected to retrospectively conform their 2015 and 2016 financial statements to provide presentation consistency and to avoid prior-year comparison disclosure in their 2017 financial notes. Therefore, it is important to know now how the new standard might impact 2015 and 2016 earnings once they become effective.
• The new revenue calculation could impact performance-based compensation arrangements. Long-term performance goals should be set and evaluated with an eye on the impact of the new standards. If existing goals may need to be adjusted to reflect the new standards, consider whether a pre-2017 CD&A should address that possibility. Your compensation consultant may need to be brought into the discussion.
• Confirm that the new standards will not affect the company’s ability to meet financial covenants contained in credit facilities, indentures or elsewhere, or impact the terms of long-term customer agreements.
• Be sure management is prepared to address anticipatory questions from analysts and investors within the bounds of Regulation FD.
• Given that MD&A must address material known trends and uncertainties, consider whether or when anticipatory disclosure is required.
• Consider whether the new standards could impact the company’s long-term tax strategies.
• Consider whether changes will be required for the company’s IT systems and internal controls, and whether they might require corresponding cash flow, capital expense or risk factor disclosures.

For some companies, the effect of ASU 2014-09 will be minimal or non-existent. For others, it could be material. To avoid being surprised by the consequences, be sure to understand now where your company might be on that spectrum.