In 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 606, Revenues from Contracts with Customers, (“ASU 606” or the “Standard”). The implementation guidance is voluminous, totaling close to 1,000 pages. Below is an overview that will help get you up to speed with the new revenue recognition rules.
ASU 606 has the potential to impact a significant number of both publically held and privately owned companies. The Standard is applicable to almost every industry with some industries being impacted more than others. The most impacted industries include: software, construction, health care, technology, life sciences; and areas of entertainment, music and sports.
The Standard is being implemented to provide a comprehensive revenue recognition model for all contracts with customers and to help streamline and remove inconsistencies from current revenue recognition requirements; provide a more robust framework for addressing revenue recognition issues; and increase the usefulness of disclosures on revenue recognition.
The Standard’s rules and guidance require a five-step process, or analysis, to determine when and how much revenue should be recognized through a particular measurement date.
The five-step process and brief synopsis on each is as follows:
A company will need to consider the terms, relevant facts, and circumstance of each contract when applying the Standard. The Standard does allow for the “global” application of the guidance to contracts with similar characteristics if a company can reasonably expect the effects in revenue recognition of applying the Standard will not differ materially from applying the Standard to the contracts individually.
The Standard also requires enhanced qualitative and quantitative note disclosures related to contract prices, including prices allocated to unrecognized performance obligations, and significant judgments used and estimates made related to the recognition of revenue.
The Standard’s rules go into effect for annual reporting periods beginning after December 15, 2017, for public companies and December 15, 2018, for private companies.
Implementation of the Standard may require significant time, resources and judgment, including tax considerations, changes to company software, and employee training.
Join us on Thursday, November 2, 2017, at 11:00am for the first in a series of webinars on revenue recognition titled “The New Revenue Standard – Are You Ready?” designed to help you navigate through this important change to financial reporting.
Click here for more information and to register!