New standard for revenue recognition

The newly converged standard for revenue recognition has arrived. Both ASU 2014-09 (issued by FASB) and IFRS 15 (issued by IASB) are entitled “Revenue from Contracts with Customers”.  They represents a principles-based framework that is effective for revenue-generating public entities with reporting periods after December 15, 2016.  Private entities will have an additional year to apply the standard.

The five steps of the revenue recognition model are:

1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognize revenue.

ASU 2014-09 also creates a new topic in the FASB Accounting Standards Codification (Topic 606) and adds a new subtopic, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers.

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