Changes to revenue recognition in the industrial products industry

Aug 30, 2018
Audit Revenue recognition Financial reporting

In May 2014, the Financial Accounting Standards Board issued new revenue recognition guidance that will, upon its effective date, replace most pre-existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (GAAP). All entities in the industrial products (IP) industry whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. To assist in understanding how an IP entity could be significantly affected by the new guidance, we have prepared a white paper, Changes to revenue recognition in the industrial products industry, in which we discuss the following topics, among others:

  • Nonrecurring engineering and preproduction activities
  • Shipping and handling activities
  • Contracts that include equipment and installation
  • Warranties
  • Contract manufacturing arrangements
  • Volume and early payment discounts and rebates
  • Right of return
  • Whether revenue should be recognized over time or at a point in time
  • When control of a promised good or service transfers to a customer
  • Sales involving distributors and consignment sales
  • Fulfillment costs related to customer contracts and the costs to obtain such contracts
  • Disclosure requirements

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 Jan. 1, 2018 for public entities with calendar year ends. For all nonpublic entities with calendar year ends, the new guidance is effective in the year ending Dec. 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 your customer contracts.

Also, for comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.

RSM contributors

  • Anna Kyer