FASB Revenue Recognition Changes – What Executives Should Know

Included in this article:




  • The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a comprehensive new revenue recognition standard that will supersede virtually all existing revenue guidance under US GAAP and IFRS.
  • The effects of the new standard will vary, possibly in considerable ways, from industry to industry and company to company.  In substantially all cases the adoption will also impact many other key business processes. For this reason, companies should assess how they will be impacted as soon as possible so that they can prepared to best implement this new standard.
  • Under US GAAP, calendar year-end public companies are required to present financial statements reflecting the new standard for the first time in 2018. Privately held companies are required to present the financial statement effects of the new standard beginning in 2019. Early adoption is permitted in 2017 for public companies and 2018 for privately held companies. Two adoption methods exist – full retrospective and modified retrospective – both with various practical expedients to ease the burden of transition. The use of either method will require companies to consider the impact of the new standard on some or all of their transactions for all periods required to be presented in their financial presentation (for example, a public company adopting the standard effective January 1, 2018 will have to consider the impact of the new standard on transactions for 2016 and 2017, as they are required to present three years of income statement information in their annual filings).


The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) (collectively, the Boards) jointly issued a single comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under US GAAP and IFRS. Under US GAAP, the standard is referred to as Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). Revenue recognition guidance under existing US GAAP is found in upwards of 40 different standards and related authoritative sources. In undertaking this landmark project, the Boards, sought to, among other objectives -

  • Provide a robust framework relevant to revenue recognition challenges across all industries
  • Eliminate inconsistencies between industry-specific standards
  • Improve comparability of revenue recognition practices across industries
  • Provide more relevant and useful measurement and disclosure information to financial statement user

The New Standard Requires the Application of a Five-Step Model

  • STEP 1: Identify the contract(s) with a customer
  • STEP 2: Identify the performance obligations in the contract
  • STEP 3: Determine the transaction price
  • STEP 4: Allocate the transaction value to performance obligations
  • STEP 5: Recognize revenue when the vendor satisfies its performance obligations

The standard’s core principle is that a vendor will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This core principle is intentionally broad and will require the use of more judgment and more estimates than is permitted or required under existing standards.

Changing Your Accounting Policy is Only the Beginning

The adoption of a more principle-based approach to revenue recognition and the elimination of the wide variety of industry-specific prescriptive criteria will not only impact the financial reporting processes related to revenue recognition, but is also expected to impact other key areas of a company’s operating environment.

Because the adoption of the new standard could pervade an organization, a company’s implementation effort should consider not only the finance and accounting function, but also sales and marketing; program management; legal; human resources; information technology; and investor relations. A critical component to any implementation plan will include thoughtful outreach to key stakeholders including investors, analysts, creditors, and employees, among others.

Key Performance Indicators

The new standard is expected to impact the measurement, recognition and disclosure of revenue for many publicly traded and privately held companies. Changes in the amount and timing of revenue recognition will likely impact certain commonly encountered performance measures. 

Revenue is widely viewed as the most important key performance indicator for a company.  Changes in revenue recognition practices will directly impact communications with key stakeholders, be they investors, analysts, creditors or others.

Many companies provide compensation to employees based on the level or trends in revenues.  Changes in the revenue recognition practices could result in the need for changes in sales commissions, bonuses and other employee incentive plans.

Changes in earnings as a result of changes in revenue recognition could negatively impact debt covenant compliance and other contractual or regulatory financial measurement requirements.

New Revenue Recognition Standard Implementation

Gaining an understanding of the effects of the new standard, developing and delivering messaging to key stakeholders and planning ahead for the operational impact of adopting the new standard are critical for a successful implementation. Even companies that do not expect significant changes in the measurement and timing of revenue will need to validate that assumption and identify any necessary changes to policies, procedures, internal controls and systems to ensure that revenue transactions are appropriately evaluated using the construct of the new standard. For companies that will experience a significant change in revenue recognition as a result of the new standard, the implementation effort will be considerable. Click here to read more about implementation.


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RyanSharkey’s Revenue Recognition Expertise

Recent changes in revenue recognition make it difficult for many companies to know precisely when and how to appropriately record revenue. RyanSharkey’s Revenue Recognition Support Services professionals work to ease the burdens of implementing the new five-stop model by: assessing and diagnosing the effect of the new standard on all sources of your company’s revenue; designing new policies and procedures; implementing the plan; and providing post-implementation evaluation to measure against US GAAP requirements.

For more information about our revenue recognition support services, please contact:

Edward Ryan, CPA
Managing Partner

Matt Rodgers, CPA
Assurance Partner

Questions? Contact RyanSharkey using the form below.

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