On May 28th the FASB and IASB issued the combined revenue recognition standard due to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, including interim reporting periods therein for U.S. GAAP public reporting entities. Additionally, U.S. nonpublic companies and organizations are to apply the revenue standard for annual reporting periods beginning after December 15, 2017, and interim and annual reporting periods thereafter. Companies using IFRS will be required to apply the revenue standard for reporting periods beginning on or after January 2017.
This change has been long-awaited and talked about for quite a while now and finally there is a final standard for which companies can begin preparing for. This new standard in a way resets the revenue standard back to more of a “principles” based standard and eliminates the “rules” based standard it had become over time. Per the May 28th press release on www.fasb.org:
Gone are the days of industry specific guidance in regards to revenue recognition as this guidance will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP. The new standard is to be applied to all contracts with customers. The first step for any business is going to of course be to analyze your contracts and transactions to determine whether they are in scope, however, it is expected that most customer contracts will be within the scope of the new standard, unless specifically covered by a different standard, i.e. lease contracts, insurance contracts, certain financial instruments, etc.
The FASB and IASB are ready to help companies through the challenges of the changes. On June 3, the FASB and the IASB announced the formation of the Joint Transition Resource Group for Revenue Recognition (TRG). The TRG will inform the FASB and the IASB about potential implementation issues that could arise when companies implement the new standard.
The proposed changes will present many challenges for end users and revenue recognition software providers and issues are sure to arise as companies start planning and implementing these changes. The December 2016 date gives companies and the TRG time to iron out issues and adjust if required.
Dan Berube is the Controller of Tensoft, Inc. and has more than 13 years of experience in financial and business systems