Revenue Date to be Pushed Back
REVENUE STANDARD’S EFFECTIVE DATE IS PUSHED BACK
By: Woody Goldstein,CPA
In May of 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With Customers (Topic 606), which initially was to be effective for non-public companies for annual periods beginning after December 15, 2017, with earlier adoption permitted, subject strict guidelines.
This ASU was created to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”) which would:
Remove inconsistencies and weaknesses in revenue requirements.
Provide a more robust framework for addressing revenue issues.
Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.
Provide more useful information to users of financial statements through improved disclosure requirements.
Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.
ASU 2014-09 establishes a new five (5) step approach for the recognition of revenue:
Identify the contract
Identify separate performance obligations
Determine transaction price
Allocate transaction price to performance obligations
Recognize revenue when each performance obligation is satisfied
This new ASU Applies to all industries with a few exceptions:
Certain non-monetary exchanges
For example, in the construction industry both of the following revenue recognition methods will be superseded by the new ASU:
Percentage of completion
On July 9, 2015, in a 6-1 vote, the FASB agreed to give companies an extra year to comply with its landmark revenue recognition standard. The postponement permits nonpublic companies to apply the new revenue standard to annual periods beginning after December 15, 2018. Early adoption subject to strict guidelines would be permitted, but not before annual periods beginning after December 31, 2016.
This decision came in response to the numerous requests that the FASB received in the past year to give companies more time to upgrade financial reporting systems and prepare for implementation of the landmark standard. As reported in various media, during the past year the Board received concerns involving:
Lack of resolution in the accounting issues that the Board is considering changing
Lack of available IT solutions for the new standard
Board members have suggested that IT vendors are waiting for the clarifying changes to be resolved before developing software
Logistical issues caused by the requirement to review contracts with customers that may number in the millions and may have durations of 10 years or more
Need to design and implement new internal controls and to educate personnel throughout the entity
We recommend that companies develop an evolving project plan that includes:
Become familiar with the new standard
Evaluate the impact on your company’s terms of sale
Evaluate the impact on your company’s revenue stream
Consider the effects on your company’s accounting and IT systems
Consider the potential effects on compensation plans
Consider transition methods and timing
Consult with professionals regarding financial reporting and tax matters
Train your accounting/bookkeeping staff
Educate stakeholders regarding changes in your company’s financial statements
In order to assist all of our clients in the adoption of this revolutionary accounting change, we will be providing educational seminars and will communicate with you in the near future.
However, in the interim, if you have any questions or concerns, please contact a partner to discuss.