Revenue Recognition
The Financial Accounting Standards Board’s (FASB) accounting standard on revenue recognition, FASB ASU No. 2014-09, eliminates the transaction- and industry-specific guidance under current U.S. GAAP and replaces it with a principles-based approach. The guidance is already in effect for public companies (including certain NFPs and EBPs). With the issuance of FASB ASU No. 2020-05: Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, other entities that have not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 may elect to defer the effective date to be 2020 for annual reporting periods and in 2021 for interim periods. Those entities may also elect to follow the original effective date of annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The resources below can help your firm and clients be ready.
Audit and Accounting Guide
The AICPA Revenue Recognition Audit and Accounting Guide includes general accounting and auditing information to consider when implementing the new revenue recognition standard, as well as industry-specific considerations.
Learning and Implementation Plan
Use this roadmap to ensure your company understands the changes to GAAP, determine how you will adopt the new guidance, find resources to train staff and educate users about the changes they can expect in your company’s financial statements.
Understanding Tax Implications
The new standard will impact the financial reporting of almost every company. But what tax consequences could also result? Financial Reporting Brief: Tax Effects of ASU 2014-09 examines this question.
FASB
The Financial Accounting Standards Board (FASB) has launched a new webpage, Implementing New Standards, that addresses why and when the FASB positions organizations for a successful and smooth transition to new financial accounting and reporting standards. You may also be interested in checking out the FASB’s Revenue Recognition Implementation Q&A. It incorporates previously issued FASB staff and Transition Resource Group (TRG) memos and other educational materials into a user-friendly format.
PCPS Revenue Recognition Toolkit
This toolkit breaks down the new revenue recognition standard and provides firms with insights into how the standard will affect their engagements. Additional resources are coming soon. This toolkit is available to PCPS members.
Resources for auditors
Webcast—ASC 606: What Auditors Need to Know (CPE credits: 2)
This webcast will walk you through the five steps to recognizing revenue under ASC 606 and how you can improve your audit quality by avoiding four common missteps.
Documentation example
Use this example of documentation for contracts to help you meet the documentation requirements of AU-C 230. It captures key terms and details from a contract with a customer.
Internal inspection aid
If you review audit work, this resource will help guide you identify non-compliance with AU-C 540 during your firm’s internal inspection. This auditing estimates aid will also guide reviewers on ASC 606 considerations.
Practice aid: Considering management’s estimates within ASC 606
This practice aid walks you through the five steps to FASB’s Topic ASC 606, including associated potential risks of material misstatement, processes where the client should have established controls and examples of audit procedures to address risks.
From the Journal of Accountancy: Challenges to consider in auditing revenue recognition
Learn more about the five steps to FASB’s Topic ASC 606 as well as common missteps to be aware of as you audit your clients.
Resources for auditors to stay independent
As your audit clients look to you for guidance in implementing this new standard, it's critical to keep independence considerations in mind. Here are a few resources to look to for maintaining your independence.
CPEA Report: Helping Attest Clients Implement the New Revenue Standard: Complying with the Independence Rules (Open to non-CPEA members)
This special report from the Center for Plain English Accounting (CPEA) will help in understanding independence boundaries when helping clients with the revenue recognition standard.
From the Journal of Accountancy: How auditors can stay independent while advising on revenue recognition
With the revenue recognition standard in full effect, it may be an instinct to help clients who still feel left behind. The extent of that assistance could impair the firm's independence. Check out some best practices here to avoid crossing the lines of independence.
Journal of Accountancy quiz: Auditor independence and FASB’s revenue recognition standard
How much guidance on the new revenue recognition standard can you offer your clients without compromising your audit independence? Take this quiz to find out how well you know the independence requirements relative to attest clients.
Ethically Speaking Podcast
Give your eyes a break from reading and listen to these podcast episodes in the Ethically Speaking series to learn about what your firm can do to maintain independence while still being a valuable resource for your clients in the revenue recognition implementation process.
Other Resources
Webcasts and CPE courses available or coming soon.
Opportunities with CPE:
Revenue Recognition: Mastering the New FASB Requirements
Interpreting the New Revenue Recognition Standard: What All CPAs Need to Know
Archived webcasts (free, no CPE available):
- Understanding the New Revenue Recognition Standard
- FASB ASC 606 – Revenue Recognition: Asset Management Entities
- FASB ASC 606 – Revenue Recognition: Software Entities
- FASB ASC 606 – Revenue Recognition: Engineering and Construction Entities
- FASB ASC 606 – Revenue Recognition: Telecommunications Entities
Subsequent ASUs and FASB Staff Papers
Subsequent to the release of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), FASB issued the following related accounting standard updates and staff papers:
- Update 2015-14 - Deferral of the Effective Date
- Update 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
- Update 2016-10 – Identifying Performance Obligations and Licensing
- Update 2016-11 – Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)
- Update 2016-12 – Narrow-Scope Improvements and Practical Expedients
- Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
- Update 2017-13—Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (SEC Update)
- Update 2017-14—Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No.116 and SEC Release No. 33-10403 (SEC Update)
- Update 2018-18—Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
- Update 2019-08—Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer
- Update 2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities
