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Going Rogue: Revenue Recognition
The U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) released the long-awaited converged standard on revenue recognition. I have reviewed a number of articles and references over the past week, and have summed up my findings.
By Francesca Zampaglione, CPA, former PICPA Vice President, Professional Education
By now you’ve probably heard that the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) released the long-awaited converged standard on revenue recognition. I have reviewed a number of articles and references over the past week, and have summed up my findings below. Here are the top five things you need to know about the newly released revenue recognition standard:
- The model is a principles-based approach, and because of this, there is virtually no industry guidance or hard-and-fast rules to check off. CPAs adore the checklist approach, and I can see where our members would not be enamored with this new standard. This is indeed a significant change, and it is a model that will require a fair amount of advance planning.
- A transition path on how to meet this new standard is glaringly absent in the guidance. For all intents and purposes, publicly held companies should be working through the details now. A separate general ledger system, run side-by-side to determine the financial impact, if any, may also be necessary.
- The guidance is principles-based and doesn’t provide step-by-step road maps or lists. There is a lack of explicit support for disclosures and, therefore, no boiler-plate examples to follow.
- The devil is most certainly in the details. No one really knows yet how the standard applies to specific industries. Companies will break down and apply the five-step model for each and every contract so that revenue can be recognized at the appropriate time and for the appropriate amount.
- The premise of this model is to eliminate variances between GAAP and IFRS. This is intentional in order to support investors being able to read and interpret financial statements all around the world, with no regard to industry, but with regard to recording how business processes are structured.
The new standard kindly reminds me that although my days in public accounting were rewarding, I certainly will not miss the explosion of reading materials and messages that I would need to manage to get up to speed on this particular standard. Lucky for you, the PICPA is here to help with a series of programs addressing this important, new standard.
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