Ready Set Go! The New Revenue Recognition Rules

Transcript:Ready Set Go! The New Revenue Recognition Rules:
Ready Set Go! The New Revenue Recognition Rules Jessie Kanter, CPA Jkanter@BlumShapiro.com www.BlumShapiro.com 1 Agenda Summary of new revenue recognition standard, Topic 606 Latest developments Implementation – what you need to be doing now 2 ASU 2014-09 Issued May, 2014 Introduced new revenue recognition topic to codification – Topic 606: Revenue from Contracts with Customers Convergence project with International Accounting Standards Board Supersedes current guidance in Topic 605: Revenue Recognition Supersedes industry specific guidance 3 ASU 2014-09 Why the new standard? Remove inconsistencies More robust framework Comparability Improved disclosures Simplification 4 Topic 606 Introduces a new principles based revenue recognition standard Core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expect to be entitled in exchange for those goods or services 5 Effective Dates ASU 2015-14 deferred the effective dates for one year Public companies Annual periods beginning after December 15, 2017 and interim periods within that period All others Annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019 Early adoption permitted for periods beginning after December 15, 2016 6 Topic 606 5 Steps to Revenue Recognition Identify the contract(s) with the customer Identify the performance obligations in the contract Determine the transaction price Allocate the transaction price to the performance obligations in the contract Recognize revenue when (or as) the entity satisfies a performance obligation New disclosures required 7 Step 1: Identify the Contract Guidance defines a “contract” as an agreement between two or more parties that creates enforceable rights and obligations and has commercial substance Written Verbal Implied 8 Step 1: Identify the Contract Requirements: Approval and commitment of the parties Identification of rights of parties Identification of payment terms Commercial substance Probable that the entity will collect the consideration that it is entitled in exchange for goods/services 9 Step 1: Identify the Contract The customer is a party that has contracted with an entity to obtain goods or services that are the output of that entity’s ordinary operations Guidance is applied to each contract with a customer May have multiple contracts to apply the guidance Evaluate for combination 10 Step 1: Identify the Contract Contract combination Evaluate whether contracts should be combined when more than one contract exists between the customer and the entity only if they are entered