Jul 15, 2015

Revenue Date to be Pushed Back

Woody Goldstein
Jul 15, 2015  |  Finance


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 the 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:

Insurance contracts

Financial instruments


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For example, in the construction industry both of the following revenue recognition methods will be superseded by the new ASU: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

Completed contract

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.