After a longer than expected wait and , the FASB and IASB finally issued the combined revenue recognition standard (ASC 606 and IFRS 15) on May 28th. This new standard won’t be effective for U.S. GAAP public reporting entities until the first interim period within their annual reporting periods beginning after December 15, 2016. For nonpublic U.S. companies and organizations, the new standard needs to be applied for annual reporting periods after December 15, 2017, and interim and annual reporting periods thereafter. And, for companies using IFRS, the revenue standard won’t need to be applied until reporting periods beginning on or after January 2017.
Sounds like plenty of notice, right? Well, not when you consider that your ERP system may be poorly equipped to handle the new standard, if it is equipped to automate your revenue recognition processes at all.
The good news is that there’s now a final standard for which companies can begin preparing. In a way, this new standard goes back to more of a “principles” based standard, in a definite departure from the “rules” based standard that it had become over time. Per the FASB’s May 28th press release on www.fasb.org:
“…The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchanges for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements.”
One significant change here is that industry-specific revenue recognition guidance will no longer be needed, since standard eliminates the transaction and industry-specific revenue recognition guidance under current U.S. GAAP. Instead, ASC 606 and IFRS 15 apply to all contracts with customers. For any business, the first step will be to analyze your contracts and transactions to ensure it falls within the scope of the new standard.
The proposed changes will present many challenges for many companies. Stay tuned for more information about this from Tensoft, as well as that can help you ensure that your systems and processes are ready to meet this challenge. Be sure to to be notified about our upcoming CPE-eligible webcasts on this - and related - revenue recognition topics. And, to learn more about and billing and agreement management solutions, please visit our website or contact me directly.
By Dan Berube, Tensoft, a
