July 10, 2019
If you follow U.S. Generally Accepted Accounting Policies (GAAP), the time has come for your company to comply with the new revenue recognition standard set for 2019. Principal Sue Hudgens, CPA, says, “If you haven’t already started planning for these changes, you should start now.”
The Financial Accounting Standards Board issued update No. 2014-09, Revenue from Contracts with Customers which uses a five-step model. This standard is now applicable to interim and annual GAAP financial statements for entities with calendar year ends. “This change is happening now and needs to be included in 2019 issued financial statements,” Hudgens says.
The amount or timing of recognized revenue will range from no change, to minimal change, to substantial change depending on the entity and the industry. Entities must analyze their transactions in accordance with the model described in the standard to determine the magnitude of change to their revenue recognition.
The standard also requires entities to provide more detailed disclosures than were not previously required. Disclosures will now include qualitative information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
Overview of the Changes
The five-step model is made to fit most businesses worldwide, as opposed to the previous standards which differed based on the industry. Using these steps, you’ll determine the timing and amount of revenue to be recognized.
- Identify the contract(s).
- Identify performance obligation(s) within the contract.
- Determine the transaction price.
- Allocate the transaction price for those obligations.
- Recognize the revenue as a performance obligation is fulfilled.
How We Can Help
Our team is here to assist you through this change now so you can avoid the stress of a last-minute time crunch. You can count on our team to help get your revenue recognition processes up to date at email@example.com.