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Five Steps for Recognizing Revenue under New FASB and IASB Standards

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Insights  <  Five Steps for Recognizing Revenue under New FASB and IASB Standards

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued their final standards on revenue recognition in 2014. The new standard will be more principles based versus rules-based, which is how U.S. Generally Accepted Accounting Principles (GAAP) standards are currently structured.

This new standard includes increased disclosure for all entities, but does not affect a non-profit’s accounting for contribution revenue. It will, however, have an effect on the accounting for a non-profit organization’s earned revenue.

The new standard is based on a five-step model for recognizing revenue. The five steps are as follows:

  1. Identify the contract(s) with a customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations in the contract
  5. Recognize revenue when (or as) the entity satisfies a performance obligation

The effective date for this standard was recently delayed one year and will now be effective for public entities for annual reporting periods beginning after December 15, 2017 (2018 calendar year-ends) and for non-public entities for annual reporting periods beginning after December 15, 2018 (2019 calendar year-ends and after). Organizations should start thinking about how they will be impacted by this new standard.

Check back over the next few weeks for further detail on each of the five steps for recognizing revenue under the new FASB and IASB standard.

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