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Understanding the New Revenue Recognition Standard

In a move to improve the financial reporting of revenue and comparability of the top line in financial statements globally, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) jointly issued a converged standard on the recognition of revenue from contracts with customers. For affected industries, the impact of this new standard can't be overstated.

Who is affected by the new revenue recognition standard?

All enterprises, including not-for-profits, who prepare their financial statements using generally accepted accounting principles.

What you need to know about the new revenue recognition standard?

The FASB issued "ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)" in May. Click here to read a thorough overview from FASB.

The new standard redefines the accounting for revenue recognition and applies to almost every industry and company; however, it does not change the accounting for leases, insurance and financial instruments.

While the standard is not yet effective, companies will need to devote substantial resources and time now to ensure they are in compliance with the new standard when the time comes.

How could this impact my business?

If your company's primary sources of revenue consist of relatively simple and routine transactions, you may not see a significant impact to your top line. More significant differences are likely to arise in the following types of industries: manufacturing, construction, software, entertainment and media, and real estate. Your company may also feel the impact in compensation and bonus plans, contracts, loan covenant compliance, information systems and tax implications.

Next steps and more information:

For more information, contact one of our revenue recognition implementation team members at Rehmann:

Published in Business Wisdom

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