Last year I wrote that the Financial Accounting Standards Board (FASB) passed Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This standard will replace existing revenue recognition models with a single five-step process (The Core Principal) that will be used by almost all companies to determine when to recognize revenue.
The Core Principle of this standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for goods or services. This is accomplished by a five-step process:
As you might guess each of these steps may require significant analysis. Even if revenue recognition changes are not expected to materially impact your financial statements the new footnote disclosure requirements may result in additional quantitative and qualitative disclosures about how revenue is recognized. The magnitude of the impact on revenue will vary from company to company.
Companies should consider developing and implementing an action plan now:
Contact GKG to learn more about how we can advise and assist with your implementation concerns and challenges.
Paul P. Conniff, CPA, CGMA