Revenue Recognition: Big Changes Coming

Revenue Recognition

After years of debate, there are new rules (ASU 2014-09) that change how companies recognize revenue.

Revenue Recognition: New Rules

The new model replaces all revenue related guidance. The new rules will impact almost every company, and some industries will see significant changes. Moreover, the changes will likely have a major impact on many areas of a business. For example, companies will need to consider the impact on accounting, revenue agreements, income taxes, debt agreements, compensation and bonus plans, investor relations, and more.

The new rules are effective for public companies 2017. Private companies will have one more year before they have to adopt. While that seems like a long-time away, it isn’t because companies may have to restate prior years. Companies can apply the new rules using two methods. Both methods will require recalculation of what revenue would have been as if the new rules had always been used.

For example, in 2018 a private company will apply the new rules to its 2018 revenue transactions. On top of that, it will have to restate all prior years presented (e.g., 2017) as if the new rules would have been in effect. Moreover, it will have to adjust beginning retained earnings as if the new rules had always been in effect.

Guidance with Revenue Recognition

The new revenue recognition rules are complex and they will take a lot of time to put into place. We recommend that companies study the possible impacts now. Give us a call at 214-545-3966 or email us at [email protected] and our team will help you deal with these new rules.