The IASB and FASB released a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a new five-step model to recognize revenue from customer contracts.
The new standard, which replaces nearly all existing US GAAP and IFRS guidance, will require significant management judgment - in addition to changing the way many companies recognize revenue in their financial statements. The changes will have pervasive impacts on people, policies, processes and systems.
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 the required changes. This may be the case even if the entity’s revenue recognition model has not significantly changed. Significant changes from current practice may include:
The standard will be effective for IFRS reporters for the first interim period within annual reporting periods beginning on or after January 1, 2017, and will allow early adoption. The standard will be effective for US GAAP reporters for the first interim period within annual reporting periods beginning after December 15, 2016 for public entities with no early adoption permitted.
Read through PwC’s revenue recognition publications on revenue recognition to get clearer understanding on how this standard may affect you in the coming years. InBrief: Access to PwC’s webcast and slide presentation explaining the standard’s interpretation, as well as industry-specific supplemental material.