Will Revenue Recognition Further Slow Down the IPO Market?

NEW YORK, Sept. 19, 2017 /PRNewswire/ -- A new Deloitte poll reveals a potential bump in the road for the still recovering U.S. initial public offering (IPO) market. The poll of nearly 3,000 executives, predominantly from private companies contemplating IPOs, across a wide range of industries, shows that only 8 percent of respondents say their companies have completed implementation of the new revenue recognition standard (ASC 606) required of all public companies effective for reporting periods beginning after Dec. 15, 2017.

More than 60 percent of respondents say their companies have not yet even started implementation or remain only in the initial assessment phase. Although nonpublic companies have until the end of 2018 to implement the new revenue standard, which was jointly issued by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) last year, companies going through the IPO process are subject to the public company deadline at the time of their IPO. Under the JOBS Act, certain emerging growth companies with annual gross revenues of less than $1 billion that undertake an IPO can elect to delay adoption of new accounting standards until the private company deadline, but, Deloitte IPO specialists note, doing so could potentially put them at a disadvantage to public company peers that have already adopted the standard.

"The gap in deadlines and the slow pace of implementation at many private companies could portend a further slowdown in the IPO market in 2018 as companies scramble to implement the new revenue standard," said Bernie De Jager, audit and assurance partner and West region accounting and reporting advisory service leader, Deloitte & Touche LLP. "Implementation of the new revenue recognition standard is a marathon, not a sprint, as it impacts not only finance and accounting, but also requires collaboration among multiple organizational functions, including information technology, sales, tax, human resources, and others."

A majority of respondents predict that IPO activity will increase modestly or substantially over the next 12 months with half expecting technology, media, and telecommunication (TMT) companies to comprise the bulk of upcoming IPOs. But, according to De Jager, TMT companies face particularly acute challenges in implementing the new revenue standard because of their often complex sales arrangements. 

"The new revenue standard is just one of many IPO readiness issues and challenges facing companies considering going public and further underscores the importance of beginning preparations for an IPO well in advance," said Heather Gates, national managing director, emerging growth company practice, Deloitte & Touche LLP. "Based on our poll results and our experience helping to guide companies of all sizes and across virtually all sectors through the process, some companies may be overly optimistic about how quickly those preparations can be made. Only one in five respondents thought six months or less was sufficient to put in place the structural and operational changes necessary for an IPO. Companies need to begin readying their accounting, tax, financial, legal, business, and systems preparations as early as possible before going public to ensure that they are able to maximize the IPO opportunity."

About the online poll
Nearly 3,000 accounting (46.5 percent), finance (23.4 percent), and tax professionals (10.5 percent) participated in the Deloitte Dbriefs webcast, "Preparing for an IPO: Build a solid plan and avoid surprises," July 27, 2017. Respondents work across more than 20 sectors, with the largest representation from banking and securities (10.8 percent), technology (9 percent), and retail, wholesale, and distribution (6.9 percent). Answer rates differed by question.

About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world's most admired brands, including 80 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to deliver measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to make their most challenging business decisions with confidence, and help lead the way toward a stronger economy and a healthy society.

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SOURCE Deloitte

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