By Toby Leslie, CPA | Business Assurance & Advisory Services Partner
Revenue Recognition Standard Summary
In 2014, the FASB issued their much anticipated and finalized standard on Revenue from Contracts with Customers, which was incorporated into the existing codification under ASC 606. Due to the complexities and far-reaching nature of this accounting change, the FASB has provided an extended length of time between issuance and implementation. Private companies were required to adopt the standard effective December 15, 2018, and public companies were required to adopt in the first quarter of 2018. The standard applies to all contracts with customers with the exception of:
- Lease contracts
- Insurance contracts
- Certain financial instruments
- Guarantees other than product or service warranties, which are within the scope of ASC 606; and
- Certain nonmonetary exchanges
Revenue Recognition Changes 2018
Due to the wide range of applicability of the standard, most entities are affected. The reporting impacts for entities will vary by industry, as well as the number and types (custom or standard) of contracts. However, even if the reporting for an entity is not considered significant, the companies must still go through the process to review their contracts, assess any changes and quantify their assessment.
According to a recent survey conducted by PwC, the four most significant revenue recognition implementation challenges for respondents were seen as being (in descending order):
- Contract reviews
- Accounting policies
- Business processes; and
- Human capital
For each of the categories noted above, over half of the respondents indicated that those challenges were very, or somewhat difficult. Due to the anticipated time required and possible impact of implementation, companies must act now to begin the process of reviewing their contracts and assessing the areas in which financial reporting and disclosures will be impacted.
Below are some additional industry and topic specific articles on the standard:
- Revenue Recognition: Contract Enforceability Provisions
- Revenue Recognition: Accounting for Franchisor Revenues
- Revenue Recognition for Private Social Clubs
- High Level Look at Disclosures Required for Revenue Recognition
- New Revenue Recognition Standard: Manufacturing, Distribution and Retail Industry Changes
- New Revenue Recognition Standard: Construction Industry Impact
- Implementation of the New Revenue Standard for Real Estate Entities
Please reach out to one of your Keiter representatives should you have any questions or need any help in your implementation of ASC 606.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.