About the New Revenue Standard
All entities – public, private and non-profit – that generate revenue are currently facing wide-scale accounting changes in how they record and report revenue. In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09 Revenue from Contracts with Customers to converge domestic and international accounting standards (GAAP and IFRS, respectively).
Public entities are required to adopt the new revenue standard for reporting periods beginning after December 15, 2017, and interim and annual reporting periods thereafter. Private and non-profit entities have an additional year to adopt the new standard.
As current rules-based GAAP transitions to a principle-based approach, all entities must implement a new five-step approach to recognizing revenue from customer contracts.
The 5 Step Revenue Recognition Model
1. Identify the contract(s)
2. Identify the separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the separate performance obligations
5. Recognize revenue when the entity satisfies a performance obligation
This new approach to accounting for revenue requires entities to make significant judgments at every step in the model. These judgments can have a pervasive impact on your organization’s people, processes, systems and users of the financial statements, especially if your organization falls into one of the following industry groups:
· Oil and Gas
· Entertainment and Communications
So, is your organization ready for the change?
The FASB recommended four broad steps to ensuring your organization is up-to-date regarding the new revenue standard:
1. Understand the changes to current GAAP based on FASB ASU 2014-09, Revenue from Contracts with Customers.
2. Understand transition and retrospective adoption of the revenue recognition standard, and determine how your company will adopt the new guidance.
3. Find resources to help train your professional staff to ensure effective and efficient implementation of the revenue recognition standard.
4. Educate users about the changes they can expect in your company’s financial statements.
Contact Us with any questions you may have regarding the new revenue standard and your organization. We’re here to help.