In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued their much-anticipated converged standard on revenue recognition. The FASB issued Accounting Standards Update (ASU) No. 2014-09, and the IASB issued International Financial Reporting Standard (IFRS) 15, both titled “Revenue From Contracts With Customers.” With only minor differences, the joint standard represents a single, global, principles-based revenue recognition model. The new guidance will affect almost every entity that recognizes revenues from contracts with customers, so financial executives with manufacturers and distributors should begin to gain an understanding of the new standard.
The far-reaching impact of the new revenue recognition standard will affect different industries in different ways. To be ready when the new guidance goes into effect, financial executives need to understand the potential effects of the coming changes and determine the best way to implement the new guidance in their organizations.
The rules for recognizing, measuring, and disclosing revenue are changing. The new rules are more complex and replace virtually all existing revenue recognition guidance. The guidance affects all entities – public, private, and not-for-profit – that enter into contracts with customers to transfer goods or services or enter into contracts to transfer nonfinancial assets. Affected organizations need to understand the new requirements now so that they can start preparing to implement them.
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