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Getting to the Bottom of the Top Line - Preparing to Adopt the New Revenue Recognition Standard

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On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, a new accounting standard that will govern revenue recognition beginning Jan. 1, 2018 for public companies and Jan. 1, 2019 for private companies. The new standard will supersede substantially all existing revenue guidance.

Many companies – both public and non-public – may have to change the way they recognize revenue under the new revenue standard. Based on the specifics of the company and the industry, the changes could be quite dramatic. Such changes may impact not only the way companies recognize revenue but also a company’s processes – e.g., financial, operational, IT, and business as a whole.

This paper highlights six practical actions companies need to take to adopt the new revenue standard as well as areas outside of accounting and finance that might be impacted.

Brief Overview of New Revenue Standard

The new revenue standard replaces existing revenue guidance – including virtually all industry-specific guidance – with an overarching revenue framework. The core principle of this framework is that companies “should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” To achieve that principle, a company needs to follow five steps: