FASB has an exposure draft out on revenue recognition. This post is a ‘heads up’, not an overall summary. This will be a fairly substantive rule, so if you haven’t heard about it, might be good to take a look. The document has a great summary on the first five pages of the introduction.
GAAP for revenue recognition is spread all over the ASC. The accounting rules have developed piecemeal across a large number of pronouncements. The FASB’s concern is there is not any one overarching pronouncement that directs revenue recognition in general. This ASU would create an overall guide.
Highlights: I won’t go into much detail in this post, just want to mention a few highlights.
The introduction suggests most transactions won’t be affected. Essentially all retail transactions would remain the same.
One major change is that revenue would be recognized when a customer takes control of an asset or service. The draft points out this will have a big impact in construction, manufacturing, and customized software.
Another major impact will be separating the performance obligations in a transaction. Distinct obligations need to be identified, separated, and accounted for individually. An example would be selling a copier with a service contract built into the price or selling a service with several deliverables. The performance obligations (such as delivering a working copier and maintaining it for a set period of time) will have different revenue recognition. That is where the draft gets quite complicated. (For the CPAs reading this, I know this is not a completely new concept, but it is to most of my audience and it will be more complicated for everyone than current GAAP.)
Disaggregated disclosures will be needed for contracts with customers.
Impact on non-profit organizations: For the big organizations, such as larger universities and major hospitals, this will be a major issue. For most of the organizations in my audience, there will be some impact, but this will likely not be a big thing.
Get a copy of the draft: All of the FASB exposure drafts are here. This is called “Proposed Accounting Standards Update—Revenue Recognition (Topic 605): Revenue from Contracts with Customers (Issued 06/24/10)”. Click on that one item, and then accept the FASB terms to get the draft.
Update: Some pushback has started.