The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly issued a new, converged accounting standard on revenue recognition.
The core principle of the new standard is that an entity should recognize revenue from a contract with a customer when it transfers goods or services to the customer in an amount that reflects the consideration it receives, or expects to receive, in exchange for those goods or services. The new standard outlines the following steps an entity should take to achieve this core principle:
Identify the contract or contracts with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price among the performance obligations in the contract.
Recognize revenue when (or as) the entity satisfies a performance obligation.
The new standard will also:
Result in enhanced disclosures about revenue.
Provide guidance for transactions not previously addressed comprehensively (for example, service revenue and contract modifications).
Improve guidance for multiple-element arrangements.
The new revenue standard will be introduced into the FASB's Accounting Standards Codification as new Topic 606, Revenue from Contracts with Customers. Topic 606 replaces the existing guidance on revenue recognition in Topic 605. The new standard will be included in IFRS as IFRS 15, Revenue from Contracts with Customers. IFRS 15 replaces International Accounting Standard (IAS) 18, IAS 11 and related Interpretations.
While the new standards reach the same conclusions on all requirements for accounting for revenue from contracts with customers, there are minor differences between the US GAAP standard and the IFRS standard on the following topics:
For public entities, the new standard takes effect for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Public entities are not permitted to apply the new standard before this date.
For non-public entities, the new standard takes effect for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Non-public entities may elect to apply the new standard earlier for the following periods:
Annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (the same as for public entities).
Annual reporting periods beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2017.
Annual periods beginning after December 15, 2017, including interim periods within that reporting period.