An Update on Implementing the New Revenue Standard
If they have not done so already, organizations of all types and sizes should start preparing to implement the new standard.
Based on feedback from stakeholders, in August 2015 the FASB deferred the effective date of the standard for all organizations by one year. More specifically, the effective date-related changes include:
- Public organizations are required to apply the new standard for annual periods beginning after December 15, 2017, including interim periods within that annual period.
- All other organizations are required to adopt the new revenue standard for annual periods beginning after December 15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019.
- Early application is permitted as of an annual period beginning after December 15, 2016. This means that all calendar year-end organizations may begin applying the new revenue standard as early as the beginning of 2017.
Discussions at TRG meetings, as well as the FASB’s ongoing dialogue with stakeholders, have informed the Board about a few areas for which clarifications or practical expedients would be helpful.
To date, the TRG has met 7 times and discussed more than 55 implementation issues. The discussions have helped to educate stakeholders broadly about the new standard. Those discussions at TRG meetings, as well as the FASB’s ongoing dialogue with stakeholders, have informed the Board about a few areas for which clarifications or practical expedients would be helpful.
The improvements that the Board has made in response to that feedback should increase consistent application of the standard, which benefits financial statement users, and should reduce cost and complexity both at implementation and on an ongoing basis. None of the amendments are fundamental changes to the new revenue standard.
The FASB clarified the guidance on determining whether an organization is a principal or an agent by issuing Accounting Standards Update (ASU) No. 2016-08 in March 2016. The ASU enhances the interaction of the control principle in the new standard with the indicators provided to assist in the principal versus agent evaluation.
The FASB also clarified the guidance on identifying performance obligations and licensing by issuing ASU No. 2016-10 in April 2016. The ASU explains that an organization is not required to assess whether promised goods or services are performance obligations if they are immaterial and it provides additional examples illustrating how the FASB intends for an organization to identify performance obligations. The FASB also clarified how an organization evaluates whether its promise to transfer a license is satisfied at a point in time or over time.
Lastly, the FASB proposed amendments to the standard that would address challenges raised by some stakeholders related to applying the guidance on collectibility, noncash consideration, contract modifications, and the presentation of sales taxes. Taking into account stakeholder input on the proposal, the FASB plans to finalize those amendments soon.
Organizations should continue to carefully evaluate the effects of the new revenue standard, including its disclosure requirements, to achieve a successful implementation.
The FASB and the IASB have worked together closely over the past two years to monitor stakeholders’ implementation of the new standard. Concurrent with the FASB making improvements, the IASB made clarifications to the new standard that apply to those who follow International Financial Reporting Standards. While the FASB’s amendments are not identical to the IASB’s amendments, the FASB expects that its amendments generally will maintain the convergence that was achieved with the issuance of the revenue standard.
The TRG has two more meetings scheduled in 2016: July 25 and November 7. In addition, the FASB stands ready to help stakeholders during the implementation phase of the standard by providing education and answering technical questions.
As always, stakeholders are encouraged to submit implementation questions to the TRG or to the FASB staff through the FASB’s Technical Inquiry service. Organizations should continue to carefully evaluate the effects of the new revenue standard, including its disclosure requirements, to achieve a successful implementation.