As discussed on the Journal of Accountancy’s website, the road to converging the United States and International accounting standards continues to be long and winding; however, a large accomplishment was reached this week when an agreement was attained on revenue recognition. It has taken 6 years to do this!
This new standard will not only bring us closer to consistency within Generally Accepted Accounting Principles (GAAP), but also will make it easier to compare financial statements of companies within different industries. In other words, it eliminates the numerous differences within industry-specific revenue recognition guidelines.
The following is the new five-step process of revenue recognition:
- Identify the contract with the customer.
- Performance obligations for the seller and buyer will be set within the contract.
- Determine the sales price.
- Allocate the sales price to each performance obligation within the contract.
- Recognize the revenue when the performance obligation completed (if completed at one time) or as each obligation is satisfied.
This new revenue recognition standard will be implemented in United States public companies after December 15, 2016; in United States nonpublic companies after December 15, 2017; and in companies using International Financial Reporting Standards beginning on or after January 1, 2017. More details will follow as those implementation dates get closer.
If you have further questions regarding this topic contact our office for more information.