Revenue recognition

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2 minutes on the IASB and FASB revenue recognition project: Nearing completion

After long deliberations (more than a decade), the IASB and FASB are about to finalize their joint project ‘Revenue from contracts with customers' that proposes a single, comprehensive revenue recognition model for all contracts with customers and for all industries.

The standard could significantly change how many entities recognize revenue, especially those that currently apply industry-specific guidance. The standard will also result in a significant increase in the volume of disclosures related to revenue.

All entities will likely have to consider changes to information technology systems, processes, and internal controls as a result of the increased disclosure requirements, among other aspects of the model. Management will need to perform a comprehensive review of existing contracts, business models, company practices, accounting policies, information technology systems, and internal processes and controls to assess the extent of changes needed as a result of the new standard. This may be the case even if the entity’s revenue recognition model has not significantly changed.

The following areas of the guidance, among others, could result in significant changes from current practice and an increase in the use of estimates:

  • determining a stand-alone selling price;
  • licensing and rights to use;
  • accounting for contract related costs
  • accounting for variable
  • consideration;
  • accounting for contract options; and
  • reflecting time value of money

The final standard is expected in the second quarter of 2014 and would be effective for the first interim period within annual reporting periods beginning on or after 1 January 2017.

Click here to learn more about this project and IASB’s decisions to date, or contact us.