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.