The Implementation Of The Revenue Recognition Project Essay

The Implementation Of The Revenue Recognition Project Essay

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The implementation of the revenue recognition project is undoubtedly going to have a widespread impact on most organizations using U.S. GAAP and IFRS, as well as users of financial information prepared according to the standard. There are going to be substantial changes in the accounting processes used to recognize revenue, which will impact entities adopting the standard. The impact of the project will be felt in three ways: there will be costs associated with changing the accounting practices of companies, entities may reformat their business practices to be more compatible with the new revenue recognition standards in order to ensure more favorable accounting outcomes, and entities’ financial statements will be materially changed.
Originally the revenue recognition was introduced for construction contracts only but later felt necessity for other industries as well. The revenue standard is introduced into the FASB’s Accounting Standards Codification as Topic 606 by Update 2014-09 Revenue from Contracts with Customers. The new standard replaces the previous revenue recognition guidance contained in Topic 605. The guidance will be included in IFRS as IFRS 15 Revenue from Contracts with Customers and replaces IAS 18 Revenue, IAS 11 Construction Contracts, and related interpretations. Companies operating in the construction industry appear to be the group most opposed to the revenue recognition project. Construction companies have enjoyed specific industry guidance with GAAP, however the project is removing that guidance and replacing it with the broader standards. Apart from Construction industry other three major industries that will be impacted with the new proposed standard are: -
Healthcare: The revenue recognition model requi...


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... may be allocated to these goods or services, which may require significant IT changes for tracking and calculating revenue, with revenue decoupled from customer billings.
Technology: The new rules may accelerate the timing of revenue recognition versus today’s GAAP guidelines. For example, vendor-specific objective evidence (VSOE) of the fair value of post-contract support (PCS) will no longer be required to unbundle a software license arrangement. This means the new rules may allow for a sizable portion of the license fee to be recognized upon delivery of the license to the customer, with the balance recognized over the PCS period. In determining the amount of revenue to recognize, a licensor will have to apply judgment, estimating the stand-alone selling prices of both the software license and the PCS even if there’s no history of selling either item separately.

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