Essentially, revenue will now be recognized consistently for all industries, which will remove discrepancies and weaknesses in existing revenue requirements.
Currently, industries are allowed to design revenue recognition requirements specifically tailored to how the industry operates. Along with a consistent revenue application among industries, this new standard will provide more useful information to users of financial statements through improved disclosure requirements.
The new standard will affect all public, private, and not-for-profit companies, but some industries will be impacted more than others. When the standard was released in 2014, the effective date for non-public companies was set for January 2018; however, on April 1, 2015, FASB voted to defer the new revenue recognition guidance for one year due to the significant time and effort required to implement the new model. This means if you own a private or not-for-profit business the standard must be implemented for annual reporting periods after December 15, 2018.
While it appears you have some time, you might have to apply this standard to prior periods if your company is presenting comparative periods in the financial statements. It is never too early to start planning, which means your company should begin gathering information during 2016 that will be needed to apply the new standard to your comparative financial statements in 2019. Being proactive with this new standard is vital with the significant change in recognizing revenue for your business.
If you would like more information specific to your company or the industry your company operates in, please contact your WK advisors at (573) 442-6171 or (573) 635-6196. We would be happy to help your company with the implementation process or to simply answer any questions you might have as you become more familiar with the changes and the effect they will have on your organization.