The Background
The Financial Accounting Standards Board (FASB) has issued several Accounting Standards Updates regarding Revenue from Contracts with Customers (ASC 606) to provide guidance for revenue recognition. The FASB and the International Accounting Standards Board (IASB) undertook a joint project to develop a common standard for revenue recognition between generally accepted accounting principles in the United States (U.S. GAAP) and IFRS. The new standard is meant to improve:
- consistency of requirements;
- comparability of revenue recognition practices across entities, industries, and jurisdictions; and
- usefulness of disclosures.
What Industries Are Affected?
Virtually all industries will be affected and, more specifically, any entity that either 1) enters into contracts with customers to transfer goods or services, or 2) enters into contracts for the transfer of nonfinancial assets (unless specifically within the scope of other standards).
When Is this Effective?
For all nonpublic entities, the framework is effective for periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The framework is effective for public entities for periods beginning after December 15, 2017, including interim periods within that reporting period.
Implementation Challenges
The major implementation challenges include fulfilling enhanced and additional note disclosure requirements, determining if contracts are legally enforceable, identifying performance obligations, accounting for variable consideration, timing of revenue recognition, scope, costs to obtain/fulfill a contract, gross versus net, and accounting for licenses. Additionally, many companies may need to implement internal controls over contracts with customers. FASB has also issued a series of implementation memos and FAQs which can provide assistance with the multitude of questions that arise during implementation. Refer to the Topical Reference Guide issued by FASB.
How Can We Help?
Our Revenue Recognition Article Series is a good place to start as you move forward with implementing the new revenue recognition framework. Selden Fox also offers consulting and advisory services related to the implementation of the new revenue recognition framework. We offer implementation guides and disclosure checklist and can assist with the implementation of controls to achieve compliance with the new standard.
Questions About Revenue Recognition
If you have questions regarding the new revenue recognition framework or questions on how it will affect your organization, we should talk. Complete the form below to begin a dialogue with us and a complimentary consultation on the impact of revenue recognition on your organization. We look forward to speaking with you soon.