United States

Revenue recognition: A whole new world

WHITE PAPER

June 2014 [Updated November 2016]

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Our white paper, Revenue recognition: A whole new world, includes a detailed discussion of the guidance in Topic 606, “Revenue from Contracts with Customers,” of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification. ASC 606 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).

The information in our white paper can be used to gain an initial understanding of the guidance in ASC 606 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 guidance and satisfy the new disclosure requirements. The white paper presents a comprehensive discussion about the application of ASC 606'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 ASC 606's scope, presentation and disclosure requirements and effective date and transition provisions. The white paper also covers the application of ASC 606'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. 

Implementation of ASC 606 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. While the FASB provided delayed effective dates for ASC 606, it was with the understanding that implementation of that guidance would be a significant undertaking for many (if not most) entities. With over two years having passed since initial issuance of ASC 606, entities should be well on their way to assessing how it will affect their revenue recognition policies and disclosures and developing an implementation plan. This is particularly true for companies that plan on electing the full retrospective transition method and companies that have multi-year contract terms with their customers.

Additional resources

Overall summary: Revenue recognition: Overview of ASC 606

Industry summaries: Revenue recognition: Industry insights

Further developments: Revenue recognition: In motion

CFO.com: Revenue recognition changes could hit middle market hard

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