Spring 2015 issue of Horizons

The long-awaited new accounting standard on revenue recognition is finally here and it will require your undivided attention. At first blush, it may appear that not much has changed, and in many cases that very well may be the case. However, the model to be used in analyzing transactions with customers in order to determine the amount and timing of revenue recognition has fundamentally changed, and the answers are not always obvious. One thing is certain, the amount and detail of financial statement disclosures will be significantly expanded. Organizations will need to begin preparing and investing now to ensure a successful adoption of the new standard.

Why Change Was Needed During 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) bringing to a conclusion its project to clarify principles for recognizing revenue.

The revenue recognition standard represents a joint project between the FASB and the International Accounting Standards Board (IASB). The project had been ongoing for some time. An initial exposure draft of the proposed standard was issued on June 24, 2010, and a revised exposure draft was issued on January 4, 2012.

In total, the FASB and the IASB received more than 1,500 comment letters in response to the proposals.

ASU 2014-09, “Revenue from Contracts with Customers,” results in a common revenue standard for U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). The previous requirements of both U.S. GAAP and IFRS were different and often resulted in variations in accounting for transactions that were economically similar. Furthermore, while revenue recognition requirements of IFRS lacked sufficient detail, the accounting requirements of U.S. GAAP were considered to be overly prescriptive and conflicting in certain areas. Additionally, revenue recognition standards under U.S. GAAP varied by industry. By issuing new guidance for revenue recognition, the FASB and the IASB have strived to provide enhancements to the quality and consistency of how revenue is reported and also improve comparability in the financial statements of companies reporting using IFRS and U.S. GAAP.

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