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, including industry-specific guidance.
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.
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 financial institutions.
For a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.