Revenue recognition: A whole new world
WHITE PAPER |
We have prepared a white paper, Revenue recognition: A whole new world, which includes detailed discussion of the guidance in the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU provides a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (GAAP).
UPDATE: To help address issues identified by entities as they implement the new guidance, the FASB and International Accounting Standards Board 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.
The information in our white paper can be used to gain an initial understanding of the guidance in the ASU and whether this guidance could result in significant changes to the timing and amount of revenue recognized by an entity. It also provides some indication of the degree to which an entity’s financial reporting processes and systems will need to change to implement the new revenue recognition model and satisfy the new disclosure requirements. The white paper presents a comprehensive discussion about the application of the ASU’s core principle, including each of the five steps that are considered in recognizing revenue for customer contracts in accordance with this principle:
In addition, detailed discussion is provided on the ASU’s scope, presentation and disclosure requirements and effective date and transition provisions. The white paper also covers the application of the ASU’s principles to specific terms in a customer contract (e.g., warranties, customer acceptance provisions) and specific types of transactions (e.g., licenses, bill-and-hold arrangements). Significant changes to recognizing revenue under U.S. GAAP also are highlighted to help in understanding the implications of the new guidance.
While the FASB has provided delayed effective dates, it’s not too early to start identifying how the guidance in the ASU will affect an entity’s revenue recognition policies.
Overall summary: Revenue recognition: Overview of ASC 606
Industry summaries: Revenue recognition: Industry insights
Further developments: Revenue recognition: In motion