United States

Changes to revenue recognition for financial institutions

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In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that will, upon its effective date, replace almost all pre-existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. Implementation of the new guidance must occur no later than the quarter and year beginning January 1, 2018, for public entities (i.e., public business entities and certain not-for-profit entities and employee benefit plans) with a calendar year end. For all other entities with a calendar year end, implementation must occur no later than the year ending December 31, 2019.

As we discuss in our white paper, Changes to revenue recognition for financial institutions, we believe the major implementation challenge for financial institutions is determining which transactions are within the scope of the new guidance. While transactions within the scope of various sections of the FASB Accounting Standards Codification relevant to financial instruments are not in the scope of the new guidance, it may not always be obvious as to whether a financial instrument topic specifically addresses revenue recognition. Additionally, implementation challenges may arise in part from arrangements that are partially within the scope of financial instruments guidance and partially within the scope of the new guidance. In our white paper, we discuss the relevance of the new guidance for the following categories of revenue for financial institutions:  

  • Interest and dividend income and fee income on loans (including credit card fees)
  • Service charges on deposit accounts
  • Servicing and sub-servicing income
  • Fees and commissions from fiduciary, securities brokerage and other activities
  • Guarantee fees
  • Insurance and investment contracts
  • Sales of financial assets
  • Sales of foreclosed property

All financial institutions will be impacted to varying degrees by the new guidance. Given that the effective dates are fast approaching, it is important for each institution to perform a complete evaluation of its various sources of revenue to determine the applicability of the new guidance and its impact on transactions within its scope.

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