Changes coming to revenue recognition for federal government contractors
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The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued substantially converged final standards on revenue recognition. The FASB’s Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), provides a robust framework for addressing revenue recognition issues.
All federal government contractors’ revenue recognition policies will be affected by the new guidance. The degree to which the recognition (e.g., timing) and measurement (e.g., amount) of a particular federal government contractor’s revenue will be affected depends on its own facts and circumstances. However, one thing is certain—the new guidance will require federal government contractors to evaluate whether any changes are needed to their current revenue and financial reporting processes and systems to comply with the new guidance. This will undoubtedly require substantive involvement by more than just those involved in the federal government contractor’s accounting function.
Even though delayed effective dates are provided in the ASU (and the FASB recently voted to propose an additional one-year delay in the effective dates), it is not too early to start having conversations about that evaluation process, particularly if you plan on electing the retrospective transition method and (or) you have multiyear contract terms with customers. To help you get started with this evaluation, read our summary, Changes coming to revenue recognition for federal government contractors, located at Revenue recognition: Industry insights.