The new revenue recognition standard is here
Revenue accounting processes may significantly change for a wide range of companies — including possibly yours — thanks to new U.S. generally accepted accounting principles (GAAP).
These new revenue recognition standards take effect in 2018 for public companies and 2019 for private companies, but don’t let those dates fool you. The time to address the new revenue recognition standards is now.
What is revenue recognition?
Revenue recognition determines the specific conditions under which revenue is accounted for. To remain in compliance in the upcoming years, businesses need to prepare for the new standards, which may advance or delay when certain revenue is recognized — creating the potential for significant tax implications.
As an example, consider the following two revenue recognition scenarios.
Single performance obligation
Tony owns a contracting company and has a contract to construct a new building and install equipment for Sunset Urgent Care. Normally, this contract would be accounted for as a single performance obligation. Under the new standard, he may have to account for the construction of the building and the equipment installation separately.
Green Hills Landscaping has been hired to design what will become the largest golf course in the state. The design and buildout will take three years. While Green Hills would typically use the percentage-of-completion method to recognize revenue over the life of the project, the new standards dictate that revenue is recognized when control of a good/service is transferred to the customer.
Rehmann can help you achieve revenue recognition compliance
The good news is that the new revenue recognition standard represents a single model to replace industry-specific — and often inconsistent — rules. The not-so-good news is that the tax implications of this development can be perplexing. Fortunately, Rehmann’s advisors have been preparing for the new revenue recognition standards and are ready to help you remain compliant with the new accounting rules. Reach out to a Rehmann representative today to get a head start on:
- Identifying which of your client contracts will be impacted
- Determining the best way to outline the performance obligations in future contracts
- Deciding upon transaction prices and properly allocating them to each performance obligation
- Recognizing revenue when or as each performance obligation is satisfied