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Posted by Paul Languirand on Tue, Jun 17, 2014 @ 09:26 AM

Revenue Recognition StandardThe FASB's much-anticipated final standard on revenue recognition has been issued. FASB Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606, is the culmination of a joint project with the IASB which simultaneously issued IFRS 15, Revenue from Contracts with Customers. The issuance of these documents completes the joint effort by the FASB and the IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and IFRS.

The new revenue recognition guidance affects all entities that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or leasing contracts). This ASU will supersede the current revenue recognition requirements found in Topic 605, Revenue Recognition, and does away with most industry-specific guidance that has been developed over several decades.

Core Principal Steps

The final guidance provides an underlying core principle that states an entity should recognize revenue 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. To achieve that core principle, an entity should apply the following steps:

  • Step 1: Identify the contract(s) with a customer.
  • Step 2: Identify the performance obligations in the contract.
  • Step 3: Determine the transaction price.
  • Step 4: Allocate the transaction price to the performance obligations in the contract.
  • Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Effective Dates

For publicly traded entities, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.

For all other entities (nonpublic entities), the guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply this guidance earlier, based on one of the following:

  • An annual reporting period beginning after December 15, 2016, including interim periods within that reporting period (public entity effective date);
  • An annual reporting period beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017; or
  • An annual reporting period beginning after December 15, 2017, including interim periods within that reporting period.

More Details to Come

We will provide further analysis of ASU No. 2014-09, Revenue from Contracts with Customers, in the near future including our Executive Education Series Webinar on June 25, 2014: Is Your Company Ready for the New Revenue Recognition Standard?

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Paul LanguirandPaul Languirand is a Shareholder in the Accounting & Auditing Group. He can be reached at 401.626.3212 and PLanguirand@cbiztofias.com. You may also contact us here

 

 

 

 

 

Tags: Paul Languirand, Revenue Recognition Standard, FASB

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