Revenue Recognition has always been a critical consideration for CFOs but this year it takes center stage. The FASB and the IASB are expected to issue a new converged standard for revenue recognition in the second quarter of 2014.
Revenue Recognition has always been a critical consideration for CFOs but this year it takes center stage. The FASB and the IASB are expected to issue a new converged standard for revenue recognition in the second quarter of 2014. The objective is to align U.S. GAAP and IFRS to arrive at a consistent global accounting standard that would apply to all industries and transactions. This means that industry-specific guidance that has been a part of U.S. GAAP will be replaced with a principle based approach for determining revenue recognition.
According to the AICPA “the Boards have tentatively decided that the new standard could be applied retrospectively,” which could add to the complexity of this transition.
Who does this impact?
Everyone. While certain industries will feel a more significant impact, all entities will need to understand and apply the new standards. Companies in industries such as real estate, construction, engineering, technology, telecommunications, entertainment and media will feel the change more than others as existing U.S. GAAP industry standards are expected to experience more impact from the new standard.
When will this happen?
The standard is expected to be released in the next few months, with the new standard applying to public entities for reporting periods that begin after December 15, 2016 and one year later for nonpublic entities, with reporting periods that begin after December 15, 2017.
Nonpublic entities will be allowed to move to the new standard at the same time as public entities, but no entities are allowed to adopt the new standard prior to the reporting periods beginning after December 15, 2016.
What steps do we need to take this year?
The first step is to assemble a team and draft a plan for implementation. The team needs to assess the changes that will need to happen in business processes and systems in order to produce financial statements under the new standard within the required time frame. Beyond the compliance implications, there will be business implications that will also need to be explored once the guidance has been finalized.
Stay tuned in the coming months for more information. Frazier & Deeter will send an update when the new guidance becomes available and will be able to help guide your company through the transition.
For more information about complex accounting and disclosure requirements such as revenue recognition, or other accounting developments, please email Bill Godshall, Lead Quality Control Partner and leader of our Public Company Audit and Advisory Practice at firstname.lastname@example.org.