New Revenue Recognition Standard In May, the Financial Accounting Standards Board and the International Accounting Standards Board issued a new, converged standard on revenue recognition. This new standard will affect all entities that enter into contracts with customers to transfer goods or services. Although private companies and not-for-profit organizations are not required to adopt this new standard until 2018, it is not too early to start thinking about how these changes will affect your company. During the next year, implementation guidance will begin to come out, on an industry by industry basis. We would be happy to discuss this standard and any questions you may have about it with you. Please contact us at (520) 624-8229 for assistance. The key issues in this standard are summarized below: • The new standard replaces the industry specific revenue recognition guidance that is currently in place with more of a principles based approach. • The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. • To achieve the above core principle, an entity should follow these five steps: 1. Identify the contract(s) with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation • New disclosure requirements will require information about the nature, amount, timing, and uncertainty of revenue and cash flows. • Significant system and internal control modifications may be required in order to capture all of the additional information required. • Private companies and not-for-profit organizations are required to adopt this standard for annual reporting periods beginning after December 15, 2017, and there are two adoption methods: 1. Retrospectively to each prior period presented, or 2. Retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. This option requires additional disclosures.
Posted on: Thu, 31 Jul 2014 15:45:49 +0000
Recently Viewed Topics
© 2015