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 federal government contractors whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. To assist in understanding how a federal government contractor could be significantly affected by the new guidance, we have prepared a white paper, Changes to revenue recognition for federal government contractors, in which we discuss the following topics, among others:
- Evaluating the contract existence criteria
- Accounting for contract modifications
- Identifying promised goods or services in a contract and determining the units of account (i.e., performance obligations)
- Measuring variable consideration, including award fees, incentives and penalties
- Allocating the transaction price to the performance obligations, and determining whether the transaction price allocated to a performance obligation should be recognized as revenue over time or at a point in time
- Accounting for contract costs, including learning, start-up and mobilization costs
- Addressing the new presentation and 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 January 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 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 your federal government contracts.
Also, for a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.