By: George M. Wilson & Carol A. Stacey
Some of the New Revenue Recognition Judgments
If you have begun your implementation work for the new revenue recognition standard you know that this one-size-fits-all, principles based model will require many new judgments for most of us. Among the challenging questions are:
- When does an agreement with a customer become legally enforceable and include the five elements that bring it in scope for revenue recognition?
- How do we properly account on the balance sheet for transactions with customers before there is an in-scope, legally enforceable contract?
- When does a product or service we deliver to a customer meet the new criteria of “distinct” and become a performance obligation, the unit of account for revenue recognition?
- How do we make the now required estimate of variable consideration and apply the new constraint?
- What will be the best method to make the required estimate of stand-alone selling price when it is not directly observable?
- When does control transfer to a customer now that delivery, ownership and risk of loss are no longer the points in time when revenue is recognized?
This list is, of course, in no way complete. Individual companies may find their judgments more or less extensive and complex.
While the FASB has produced all of these new principles and the related judgments, it has also included a fair amount of implementation guidance in the new standard and clarified several issues in updates to the ASU. There are a few more soon to be final technical corrections in another ASU that you can read about here.
AICPA Help for Specialized Industries
Since this new standard is a “one-size-fits-all” approach to revenue recognition and it supersedes all industry specific guidance we have today, industries like oil and gas, airlines and others face unique challenges. In addition to the FASB’s efforts to assist us in this process you may have heard that the AICPA has also formed special task forces to deal with industry specific challenges in implementing the new standard.
You can learn about the AICPA’s efforts surrounding the new revenue recognition task force here.
The industry groups are:
- Aerospace and Defense
- Asset Management
- Construction Contractors
- Depository Institutions
- Health Care
- Oil and Gas
- Power and Utility
There are over 100 specific position papers that have been put in process for the working groups and task forces which will ultimately be reviewed by FINREC. If you work in one of these industries, the links above will help you find the related working papers and their status.
As always, your thoughts and comments are welcome!