The rumor is true: revenue recognition as we know it will soon undergo a major makeover that will affect your business accounting. Although these changes won’t officially take place for another couple of years, now is the time to prepare. Here are a few steps you can take to get ready:
While this may be hot news in the accounting world, many companies aren’t up to speed on what the new revenue recognition rules are about. In a nutshell, the Financial Accounting Standards Board (FASB) and International Standards Board (IASB) have spent the last few years developing a new standard, Revenue From Contracts With Customers, to clarify the existing revenue guidance, which is widely seen as too vague. When implemented, the new standard will essentially standardize how contracted revenue is recognized across entities, jurisdictions, and industries worldwide, and will apply to any situation where there is a contract for goods and services.
The new standard is slated to affect publicly traded companies in 2018; private companies are expected to fall under its jurisdiction in 2019. Because the changes represented by this standard are so monumental, it’s possible the effective dates could be pushed out.