Rewriting Revenue RecognitionHave you heard about the new revenue recognition standard (ASU 2014-09, Revenue from Contracts with Customers and IFRS 15, Revenue from Contracts with Customers)? You probably have, but even if you have heard about it and read a few articles or white papers, chances are you aren’t certain what it means for your company. If that’s the case, you are not alone. In my conversations with controllers and auditors over the past several months, it’s clear that very few feel prepared for the new standard. At a high level, the goal of the new standard is to bring GAAP and IFRS into alignment with each other; remove inconsistencies in existing revenue requirements; improve comparability across entities, industries and capital markets; and simplify the preparation of financial statements by reducing the number of requirements an entity must refer. More specifically, the new standard demands an organization to take the following steps:
- Indentify the contract with the customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price
- Recognize revenue when or as the entity satisfies a performance obligation.
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