Well it certainly took them long enough! After years of proposals and revisions and discussions, FASB and the IASB have finally issued the long-awaited revenue recognition standard.
And it’s going to be a game-changer.
Update No. 2014-09 – Revenue from Contracts with Customers (Topic 606) will replace more than 200 specialized requirements under GAAP.
And as long as your company enters into contracts with customers to provide goods or services, you’ll be impacted.
There’s still a little time – the new standard takes effect:
- fiscal years beginning after Dec. 15, 2016 for public companies, and
- fiscal years beginning after Dec. 15, 2017 for private companies.
But considering how much effort will go into compliance, it’s smart to start prepping as soon as possible.
Here’s a breakdown of what’s coming, as well as your best first moves.
5 main steps
Once in effect, the new standard will require your organization to follow a five-step process in order to recognize revenue from those contracts:
1. Identify the contract with the customer.
2. ID the separate performance obligations in that contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations.
5. Recognize revenue when the entity satisfies each performance obligation.
That’s a tall order, for sure. To do all that you will likely need to revisit many of your contracts, both to meet these new accounting obligations and to figure out how you’ll have to adjust your policies and systems to get the job done.
Groups that will probably play a role and you’ll want input from for starters:
- IT, and
- Legal .
Certain industries will feel it most
And while almost all businesses will have to make changes as a result of this new standard, experts have identified certain industries that will really feel some major shake-ups.
You and your finance staffers will have an extra large to-do list if your company is in telecommunications, software or real estate, for example.
More guidance could be coming
With a lead time like this, you and your peers are bound to have questions about compliance. Especially as you start to delve into the nearly 200-page document.
FASB’s ready for that.
The Board established a “joint transition resource group” last summer to look out for interpretive issues that could trip companies up. And something tells us there’ll be plenty that fits that description.
Stay tuned – CFO Daily News will keep you updated.
Info: To download Update No. 2014-09 –Revenue from Contracts with Customers (Topic 606), click