Focus: Revenue Recognition

Due to the pervasive nature of the changes of the new revenue recognition standard, commonly referred to as Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, it is important to be proactive in considering the effect on your company. While still a few years from adoption, the changes have likely already begun to affect you in 2016: be prepared! Changes in revenue recognition could affect management bonuses, EPS estimates, key performance indicators and debt covenants.

The revenue recognition standard affects all entities—public, private, and not-for-profit—that have contracts with customers, except for certain items, which include leases accounted for under FASB Accounting Standards Codification (ASC) 840, Leases; insurance contracts accounted for under FASB ASC 944, Financial Services—Insurance; most financial instruments, and guarantees (other than product or service warranties).

While the effective date was delayed by 1 year, how an entity chooses to adopt the revenue recognition standard (i.e. the “Standard”) dictates the years that revenue, and the other direct effects of the Standard, will need to be restated. For example, if a calendar year accelerated filer elects full retrospective adoption, revenue, and the other direct effects of the Standard, must be restated for 2016 and 2017 in its 2018 filings. If the same filer does not elect full retrospective adoption, additional disclosures are required in its 2018 filings, specifically noting the effects of the Standard on 2016 and 2017 and explanations for each significant change.

Under either adoption method, contracts in 2016 and 2017 may need to be analyzed for appropriate treatment under the new revenue standard.

Next Steps for your Company:

  1. Contact Centri to discuss your potential challenges with transition to the new standard; we can help explain the changes to current GAAP;
  2. Understand the transition and retrospective adoption of the revenue recognition standard and determine how your company will adopt;
  3. Develop a plan to train your professional staff; ensuring effective and efficient implementation of the revenue recognition standard;
  4. Educate users about the changes they can expect in your company’s financial statements; this includes banks, internal decision makers and your board of directors.

Please contact us for a complementary consultation to discuss your challenges and potential solutions.