In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), a converged standard on revenue recognition. The new pronouncement requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. The FASB also subsequently issued several amendments to the standard, including clarification on principal versus agent guidance, identifying performance obligations, and immaterial goods and services in a contract.

The new accounting standard update must be applied using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which requires additional footnote disclosures).

The new accounting standard is effective for reporting periods beginning after December 15, 2017. We adopted the accounting standard effective October 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods. Therefore, the comparative information has not been adjusted and continues to be reported under ASC Topic 605. We recognized a net after-tax cumulative effect adjustment to retained earnings of $399,000 as of the date of adoption. The details and quantitative impacts of the significant changes are described below.

We previously recognized revenue for parts and service operations (boat maintenance and repairs) when the services were completed and recorded amounts due to us as receivables. Under ASC Topic 606, performance obligations associated with parts and service operations are satisfied over time, which results in the acceleration of revenue recognition, and amounts due to us are reflected as a contract asset until the right to such consideration becomes unconditional, at which time amounts due to us are reclassified to receivables.

Consolidated Balance Sheet Line Items
	Impact of changes in accounting policies
			Balances without		Impact of
			adoption of ASC		adoption
September 30, 2019	As Reported		Topic 606		Higher/(Lower)
Inventories, net	$	477,468	$	477,405	$	63
Prepaid expenses and other current assets		10,206		7,681		2,525
Accounts payable		33,674		33,708		(34	)
Accrued expenses		42,849		40,669		2,180
Deferred tax liabilities		1,142		1,005		137
Retained earnings	$	202,455	$	202,150	$	305

Consolidated Statements of Operations Line Items
	Impact of changes in accounting policies
			Balances without		Impact of
			adoption of ASC		adoption
Fiscal Year Ended September 30, 2019	As Reported		Topic 606		Higher/(Lower)
Revenue	$	1,237,153	$	1,237,899	$	(746	)
Cost of sales		914,321		914,939		(618	)
Income from operations		60,532		60,660		(128	)
Income before income tax provision		48,953		49,081		(128	)
Income tax provision		12,968		13,002		(34	)
Net Income	$	35,985	$	36,079	$	(94	)

Consolidated Statements of Cash flows
	Impact of changes in accounting policies
				Balances without			Impact of
				adoption of ASC			adoption
Fiscal Year Ended September 30, 2019	As Reported			Topic 606			Higher/(Lower)
Net income	$	35,985		$	36,079		$	(94	)
(Increase) decrease in —
Inventories, net		(84,330	)		(83,712	)		(618	)
Prepaid expenses and other assets		(3,182	)		(1,748	)		(1,434	)
Increase (decrease) in —
Accounts payable		8,701			8,735			(34	)
Accrued expenses and other long-term liabilities	$	4,731		$	2,551		$	2,180

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual period.

We expect the adoption of ASU 2016-02 will have a significant and material impact to our consolidated balance sheet given our current lease agreements for our leased retail locations. We expect that most of our operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a material increase in the assets and liabilities recorded on our consolidated balance sheet. As part of our transition process, we have assessed our lease arrangements, evaluated practical expedient and accounting policy elections, and implemented software to meet the reporting requirements of this standard.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients,’ which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being material to us. We plan to adopt the standard using the optional transition method with no restatement

of comparative periods and a cumulative effect adjustment recognized as of the date of adoption. Consequently, on adoption based on our leases as of September 30, 2019, we expect to recognize additional operating liabilities ranging from $39 million to $54 million, with corresponding right-of-use assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. We are finalizing our cumulative effect adjustment and currently expect that all changes to our accounting methods as a result of adopting the new standard will result in a net, after-tax cumulative effect adjustment to increase retained earnings as of October 1, 2019 in the range of $0.5 million to $1.2 million. We will adopt ASU 2014-09 in fiscal 2020.

The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, including for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for the majority of our leases. We also expect significant new disclosures about our leasing activities in accordance with the new standard.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. We are currently evaluating the impact that this standard will have on our consolidated financial statements.