White paper

Changes to revenue recognition for business and professional services

Jan 20, 2020
Professional services
Audit Revenue recognition Financial reporting Business services

In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that replaces almost all pre-existing revenue recognition guidance in current U.S. generally accepted accounting principles (GAAP), including industry-specific guidance.

All service providers whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. In our summary, Changes to revenue recognition for business and professional services, we discuss the following areas of the new guidance and how a service provider’s revenue recognition may change upon implementing that guidance:

  • Accounting for contract modifications
  • Identifying the units of account
  • Accounting for incentive payments
  • Determining whether revenue should be recognized over time or at a point in time
  • Recognizing revenue as a principal or an agent

While the degree to which a particular service provider’s revenue will be affected depends on its own facts and circumstances, it is important to note that every service provider will be significantly affected by the disclosure requirements in the new guidance because they substantially increase the volume of revenue-related information disclosed in the financial statements.

While the effective dates for the new guidance are staggered, they are now upon us. With limited exceptions, the new guidance was effective as of January 1, 2018 for public entities with calendar year ends. For all nonpublic entities with calendar year ends, the new guidance was effective in the year ended December 31, 2019. Time is of the essence for these entities given that implementation of the new guidance could represent a significant undertaking in many cases. Our white paper can be a valuable tool in the implementation process to help understand the application of ASC 606 to entities in the business and professional service industry. For a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.

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