Revenue Recognition: A Comprehensive Review for Manufacturers & Distributors
Since 2008, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working on developing a single converged model for recognizing revenue. The boards agreed a common standard on revenue for U.S. generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) was critical toward achieving a single set of high-quality global accounting standards. FASB’s objectives were to remove inconsistencies and weaknesses in existing requirements, provide a more robust framework for addressing revenue issues, improve comparability across companies, industries and capital markets and provide more useful information to users through enhanced disclosures.
After two exposure drafts and years of deliberations, the boards completed their joint project on revenue recognition and issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), on May 28, 2014. The new principles-based standard substantially replaces all existing guidance for recognizing revenue, including more than 200 pieces of industry-specific guidance, and will require more estimation and greater use of judgment than current guidance.