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[sludgehound]

New accounting rules ahead 2017

Don't know how this will impact the Hertz types.

Accounting rule makers on Wednesday issued a long-awaited overhaul of how companies record revenue on their books-- a move 12 years in the making that will affect a broad array of companies from software firms to auto makers to wireless-communications providers.
The new rule, issued jointly by U.S. and global rule makers, will take effect in 2017, leading many companies to either speed up or slow down the rate at which they book parts of their revenue.
The aim is to simplify and make more consistent one of the most basic yardsticks of a company's performance--how much of its product or service it is selling. While companies will still record the same total amount of revenue over time, investors could see some companies' results rise or fall compared with what they are now, as the timing of how they book their revenue changes.
"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 U.S. companies. "We wanted to make sure there was a consistent method for companies to identify revenue."
The moves could speed up the recognition of revenue for wireless-provider and software firms, while stretching them out for auto and appliance manufacturers. Other firms may see an impact, though less pronounced.
Revenue recognition has long been a focus of accounting rule makers, because it affects every company and because it can often be an area given to fraud--improperly speeding up or deferring revenue have been at the heart of many accounting-fraud allegations. Xerox Corp. , for instance, paid a big settlement to the Securities and Exchange Commission in 2002 over allegations it had improperly accelerated revenue. Xerox didn't admit or deny the SEC's allegations.
But under current rules, how revenue is booked can vary by industry, and companies' recognition of revenue often isn't in sync with their delivery to customers of the goods and services that generate it. For instance, when auto and appliance makers sell their products, they typically book the purchase price immediately, but the transactions can also include free maintenance or repairs under warranty that the company might not provide for months or years.
Under the new rules, the manufacturer would book less revenue upfront and more revenue later, because some of the revenue from the car or appliance would be assigned to the future service charges. The net effect: The company might see some of its revenue stretched out under the new rules by months or years.
Conversely, software makers such as Microsoft Corp. and Oracle Corp. may recognize some revenue more quickly. Currently, software companies often have to recognize their revenue over time, because they deliver parts of their products to customers, like upgrades to software programs, long after the initial purchase, and often have to wait until all of the pieces are delivered before they can recognize the sale. The new rules will make it easier for companies to value upgrades separately and thus recognize more of the software's overall revenue upfront, Mr. Golden said.
Similarly, wireless phone companies such as Verizon Communications Inc. and AT&T Corp. might book some revenue faster under the new rules. Currently, a wireless company basically books revenue as customers receive wireless services each month, but that doesn't taken into account the actual phone, which customers get free or for a low price when signing up. With the new changes, some of the overall revenue from each customer will be applied to the handsets they receive, and so the company will be able to book that revenue earlier.
A revenue-recognition revamp has been talked about for more than a decade. The FASB and the International Accounting Standards Board , which sets rules in most of the world outside the U.S., have been working together on the project since 2006 and it has been on the FASB agenda since 2002.
The boards signed off on the final version last year, but production matters caused months of further delays for issuance of the new rules, which run to 900-plus pages once all the supporting documents are counted.
It took so long, Mr. Golden said, because of "the breadth of the topic-this really affects every single company in the world. The boards wanted to make sure we got it right."
Write to Michael Rapoport at [e-mail]
Corrections & Amplifications
This item was corrected at 2:12 p.m. ET on Friday, June 6, 2014 . The original incorrectly referred to a detail of current accounting rules for wireless companies. These companies currently book revenue as customers receive wireless services each month, not as they pay their wireless bills each month.
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(END) Dow Jones Newswires
05-28-14 0759ET
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