Many businesses are struggling to understand the recent changes to the revenue recognition standards. The US Financial Accounting Standards Board (FASB) recently released technical corrections and changes that include clarifications on contracts and preproduction costs as they pertain to long-term supply arrangements. Since these rules go into effect very soon, it’s important for businesses to review their technology and make sure they can comply with these new standards.
These changes are
- Clarify which contracts are in the scope of existing guidance and which are in scope for new guidance.
- Clarify that when performing impairment testing for contract costs capitalized, an entity should consider expected contract renewals and extensions and should include both the amount of consideration it already has received, but has not recognized as revenue, and the amount the entity expects to receive in the future.
- Require that provisions for losses on construction-type and production-type contracts be determined at least at the contract level.
- Provide practical expedients to the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue.
- Create a new Subtopic for Entertainment—Casinos—Derivatives and Hedging, which would include a scope exception from derivatives guidance for fixed-odds wagering contracts.
- Align the cost-capitalization guidance for advisers to both public funds and private funds.
It’s no easy task clarifying such a complicated change to how companies manage customer contracts. After a while, these new guidelines start looking like a foreign language.
If you’re getting lost in the updates, scopes, amendments and disclosures, take a look at your technology. Can your software automatically track revenue with dates of transactions, details involved, as well past and future contracts? Having
By BTerrell Group,