The FASB set December 15, 2017 as the effective date for public corporations to comply with ASU 2014-9, Revenue from Contracts with Customers (Topic 606). Private companies must comply for reporting years beginning after December 15, 2018. Does that mean we have another year or two to figure out how ASU 2014-9 differs from existing GAAP revenue recognition provisions?
Contracts beginning before and ending after the effective date must be accounted for under both the old and new guidance to enable transition year comparative reporting. For example, a current three-year contract dated February 1, 2016 and ending January 31, 2019 both begins before and expires after the transition year for public and private companies. Therefore, that contract must eventually be reported as if the new standard had existed at contract inception even though current reporting must be under the old guidance until the transition year. Could it be any more confusing?
Existing GAAP revenue recognition guidance differs from one industry to another, whereas ASU-2014-9 applies the same standard to all companies across all industries. The new guidance establishes the following core principle:
Recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
It’s now time to ramp up quickly to avoid modified audit opinions for failure to follow the new revenue recognition guidance. Thankfully, Intacct has shown a sense of urgency by announcing the Intacct Contract and Revenue Management module on May 10th, which enables subscribers to correctly report on transition year contracts as if the new guidance was always in effect.
Familiarize yourself now on crucial differences between existing GAAP and ASU 2014-9. Review contracts that may be subject to comparative transition year reporting. And, if necessary, contact me directly when you need assistance with navigating this transition period.
By BTerrell Group, Texas Intacct ERP Partner