The Financial Accounting Standards Board (FASB) has been working towards simplifying the myriad of previously issued accounting rules and guidance. Below is a brief summary of some of the more relevant and widely applicable changes.
New revenue recognition standard:
In May 2014, the FASB issued a new accounting standard on revenue recognition that could have a significant impact on companies in all industries. The basic premise of the new standard is that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects how much is reasonably expected to be received. The anticipated, simplified revenue recognition 5-step process consists of the following:
- Identify the contract with the customer
- Identify the separate performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the coinciding performance obligations within the contract
- Recognize revenue when or as the entity satisfies a performance obligation
The standard is applicable for nonpublic entities for years beginning after December 15, 2018 (i.e., for a financial statement with a calendar year ending December 31, 2019). It is important for companies to understand how the new standard will affect the amount and timing of its revenue to make sure policies and procedures are in place by January 1, 2019 to properly account for revenue transactions. The AICPA is currently creating industry-specific guidelines on the application of the standard.