April 3, 2015
If the proposal the Financial Accounting Standards Board (FASB) voted for on Wednesday is eventually enacted, the effective dates for the new revenue recognition standard will be one year later than planned. The board proposes to give both public and private entities an additional year to prepare to implement Accounting Standards Update (ASU) No. 2014-09, “Revenue From Contracts With Customers,” far-reaching guidance that was issued jointly with the International Accounting Standards Board (IASB) in May 2014.
The FASB plans to issue an exposure draft of the proposed postponement with a 30-day period for public comment.
The proposed deferral would cause the ASU to be effective for public entities for reporting periods beginning after Dec. 15, 2017 – changed from Dec. 15, 2016 – including interim reporting periods. Public entities would be permitted to adopt the standard as of the original effective date – that is, beginning after Dec. 15, 2016. For nonpublic entities, the ASU would be effective for annual reporting periods beginning after Dec. 15, 2018 – changed from Dec. 15, 2017 – and interim periods within annual reporting periods beginning after Dec. 15, 2019. Nonpublic entities would be permitted to adopt the standard as of the original effective date for public companies – that is, beginning after Dec. 15, 2016.
The culmination of a joint project of the FASB and the IASB to simplify and make more consistent the way organizations recognize their revenue, ASU 2014-09 provides a common revenue standard for U.S. generally accepted accounting principles and international financial reporting standards. The principles-based standard is expected to replace an array of industry-specific guidance.
The new standard would affect any entity that enters into contracts with customers unless those contracts are in the scope of other standards, such as lease contracts or insurance contracts. Different industries will be affected in different ways, but all organizations are likely to experience some impact. The FASB proposal would give organizations an additional year to evaluate the financial reporting implementation and put in place systems and processes necessary for compliance.
Alex J. Wodka
Partner, General Audit Services