Revenue Recognition and Its Impact

The FASB and IASB recently replaced industry-specific guidance on revenue recognition in favor of a single, comprehensive model.  In response, the AICPA has formed industry-specific task forces in order to develop their new “AICPA Accounting Guide on Revenue Recognition.” The FASB expressed concern over this, since the aim is to create a general revenue guide for all transactions and industries.  

The majority of companies who apply U.S. GAAP or IFRS will be affected by the changes to revenue recognition. It also appears that the new rules will impact some industries more than others, even though the boards have stressed that revenue recognition is now contract-based and not industry-based. The FASB and IASB have created a Revenue Recognition Transition Resource Group to aid in identification and implementation issues.

Regardless, it is likely that changes to how revenue is recognized will have a profound impact on the technology and life sciences industries.

In the technology industry, the following will be of concern:

• Identifying Performance Obligation
• Long-Term Contracts for the Customization of Software
• Licensing of Intellectual Property
• Allocating Transaction Price
• Accounting for Contract Costs

In the life sciences industry, the following will be of concern:

• Identifying the Contract
• Contract Modification
• Identifying Performance Obligations
• Determining the Transaction Price
• Allocating Transaction Price
• Satisfying the Performance Obligation
• Milestone Payments
• Collaborative Agreements

For more information, please see my summary of these issues in the Accounting Policy & Practice Report, published by Bloomberg in July 2014.