New Revenue Recognition Standards: What You Should Know to Prepare

By Donna Caruso, Principal

October 23, 2017

In May 2014, the long-awaited revenue recognition standard was issued with the intent of creating consistent revenue reporting across all businesses in varying industries throughout the world. Specifically, the Financial Accounting Standards Board (FASB) has stated that “the objective of the new guidance is to establish principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers.”
The implementation of the accounting standard means the industry-specific guidance currently used in the United States will no longer be applicable, and there will be more comparability related to the recognition of revenue across entities, industries and jurisdictions. 

Effective Date for Final Revenue Recognition Standards
In August 2015, the FASB issued an Accounting Standards Update (ASU) extending the effective date by one year. Currently, public organizations should apply the new revenue standard to reporting periods beginning after Dec. 15, 2017. Nonpublic organizations should apply the new revenue standard to reporting periods beginning after Dec. 15, 2018. Early adoption is allowed for both public and nonpublic organizations, however, not before the original public organization effective date of annual periods beginning after Dec.15, 2016.

Core Principle of the New Guidance
The core principle of the new guidance, known as Topic 606 (Revenue from Contracts with Customers), is that a company should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled for those goods or services. Revenue is recognized when a company satisfies a performance obligation by transferring the promised goods or services to the customer (at which point the customer obtains control of those goods or services).
As imagined, there are a lot of moving parts. FASB has provided the illustration below listing the five steps companies should follow to achieve the core principle:

What’s Next
The Windham Brannon audit team will provide further information in the near future regarding the new accounting standard, including implementation considerations and industry-specific guidance.
For specific questions on the new revenue recognition standards, contact Donna Caruso, audit principal for Windham Brannon, at dcaruso@windhambrannon.com.