The FASB Delays Landmark Revenue Recognition Standard– July 28, 2015

On July 9, 2015, the Financial Accounting Standards Board (FASB) officially deferred implementation of the landmark global revenue recognition accounting standard by one year.

Many years in the making
Revenue is considered one of the most important measures of a company’s financial health, and proper implementation of the standards is high on the FASB’s list of priorities. In May 2014, the FASB published Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The standard is considered one of the most important standards the FASB has released in recent years.

The standard is the result of more than 12 years of work and is expected to usher in a major change for many companies, especially for those in the software, media and telecommunications industries. ASU 2014-09 replaces about 180 pieces of individual guidance under U.S. Generally Accepted Accounting Principles (GAAP) with a single principles-based model for recognizing revenue from customer contracts worldwide.

The American Institute of Certified Public Accountants (AICPA) formed 16 task forces in specific industries, including not for profit, construction, and health care, to help companies interpret and apply the new standards. Each task force will create an industry-specific accounting guide on revenue recognition, including illustrative examples of how companies should apply the new guidance.

The original effective date for the converged guidance was January 1, 2017, for calendar-year public companies. Early adoption wasn’t allowed for public companies. Private companies were given an extra year to implement the new rules, or they could opt to implement them at the same time as public companies.

Deferred implementation dates
Under the extension approved by the FASB, public companies, certain employee benefit plans and some not-for-profit organizations can wait until the fiscal years that start after December 15, 2017, to apply the new revenue recognition standard. They’ll also apply the standard to the quarterly reports and other interim-period reports issued for that year.

Private companies can adopt the standard for annual financial statements for fiscal years that start after December 15, 2018. In addition, private companies can apply the standard to quarterly reports and other interim-period reports for fiscal years that start after December 15, 2019.

The deferred standard also give companies the option of adopting the standard on the original effective date.

More amendments under consideration
For companies that engage in contracts with customers, the standard calls for sweeping changes to revenue, a fundamental barometer of companies’ financial health. The FASB has been fielding numerous questions from the public about this standard, and is considering amendments to clarify various portions.

For many companies, implementing the new standards means revising their accounting controls, processes and systems. So, don’t let the one-year deferral of the revenue recognition standard lull you into complacency. .


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