Revenue recognition: Industry insights
The Financial Accounting Standards Board and International Accounting Standards Board recently 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 and will replace almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles (GAAP) upon its effective date. Included in the revenue recognition guidance that will be superseded is the vast majority of industry-specific revenue recognition guidance currently in U.S. GAAP, including the guidance applicable to construction contracts, software arrangements, health care entities and real estate transactions, to name just a few. Some of the limited scope exceptions provided in ASU 2014-09 relate to lease contracts, insurance contracts and various contractual rights or obligations related to financial instruments.
UPDATE: To help address issues identified by entities as they implement the new guidance, the FASB and International Accounting Standards Board (IASB) established the Joint Transition Resource Group (TRG). Constituents submit issues to the TRG for discussion and to the extent the TRG discussions on an issue lead the FASB and (or) IASB to believe additional standard setting is necessary, they add the issue to their respective agendas. Both the FASB and IASB have added projects to their agendas to address several of the TRG issues. The FASB projects are expected to change or clarify the new revenue recognition guidance. The effects of any such changes or clarifications on the new revenue recognition guidance will be reflected in this white paper after they are finalized. In the meantime, for additional information about the TRG issues discussed by the FASB and their status, refer to our article, Revenue recognition: In motion. For additional information about the TRG issues discussed by the IASB and their status, refer to the IASB’s website.
While revenue recognition in virtually all industries will change as a result of the new guidance, the extent of that change will vary by industry and by entity depending on the nature and terms of the revenue-generating customer contracts prevalent in the industry and entered into by an entity. While the new guidance has a delayed effective date, it’s not too early to start understanding how the accounting for revenue-generating customer contracts in your industry might be changing. Use the summaries listed below to help you obtain this understanding. Additional summaries will be added to this list soon.
For highlights of the new guidance, refer to our summary, FASB issues final revenue recognition standard. For a comprehensive discussion of the new guidance, refer to our white paper, Revenue recognition: A whole new world.