Revenue Recognition: Changes Around the Corner
On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and it is hard to believe it has been three years since it was issued. This standard eliminates the transaction- and industry-specific revenue recognition guidance under the current Generally Accepted Accounting Principles (GAAP) and replaces it with a principle-based approach for determining revenue recognition. The FASB has subsequently issued multiple ASUs that modify or add to the original standard.
Public business entities are required to adopt the provisions of the new standard for their respective years beginning December 16, 2017, while other entities receive a one-year deferral. To assist companies and their auditors with implementation of the new standard, the American Institute of CPAs (AICPA) formed 16 separate industry working groups to develop a new Accounting Guide on Revenue Recognition. This guide will provide implementation hints and examples that should greatly facilitate proper application of the new standard. The 16 working groups represent industries such as software, insurance, asset management, health care, not for profit, telecommunications, construction, and power and utility. Virtually all entities will be impacted by the new standard in some form or another.
In May 2017, exposure drafts for public comment addressing specific considerations were issued by working groups of the asset management, engineering and construction, gaming health care, hospitality and software industries. These exposure drafts and other useful information are available to the public via the AICPA Financial Reporting Center (“FRC”). In addition to the FRC, the AICPA provides helpful tools for audit committees and other stakeholders at no cost on their website.
The new revenue standard is representative of the trend of GAAP becoming less rules-based and more principles-based. A lot of time and energy is going into this project and it will be interesting to see how the new standards are received by the users of the financial statements.
If you have any questions about how the new accounting standard may affect your business, please don’t hesitate to contact our team at Holtzman Partners at 512.610.7200.