Effective 1 January 2018, revenue for all companies following US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS) will be recognized under a new accounting standard. The degree of change resulting from this standard will vary by company and industry. The new standard replaces substantial prescriptive US GAAP guidance with principles that are highly, but not completely, converged with IFRS, which offered minimal guidance on revenue recognition prior to this standard. In 2018, all investors should be aware and consider the impact of the standard. To that end, this paper includes a series of analytical considerations for investors. Much of what has been written on the standard has focused on how it should be applied by accountants, and not on how it should be analyzed by analysts and investors. In this paper, we examine the top 10 questions investors should consider as they review year-end 2017 results and consider first quarter 2018 reporting as it relates to the adoption of the new standard.

Although companies should already be disclosing the impact and method of adoption, research shows that these impacts have not been well disclosed as of the third quarter 2017. Most companies will follow a modified retrospective method of adoption, which will leave investors with little trend information upon which to consider the impact of the transition on their analysis. While a handful of companies have early adopted—and have been fairly effective at their communications—we think investors should develop their own expectations related to the companies they follow or invest in as well as the nature of the changes in their respective industries.