FASB's revenue recognition standard takes center stage.

• Position: Financial Accounting Standard Board

The Financial Accounting Standard Board's (FASB) long-anticipated new standard on revenue recognition is clearly one of the most important developments in US GAAP accounting in the last several years. John Hepp, partner in Grant Thornton's National Professional Standards Group, calls the new revenue standard, issued in May 2014, "the most significant standard-setting activity since the FASB required entities to put health care benefits on their balance sheets." The impact of the new revenue standard is far-reaching, according to Hepp: "Every company has revenue (they hope). Therefore, each entity that enters into contracts with customers, with very few exceptions, will need to understand and implement the new model."

Generally, those industries that apply the required or available industry-specific guidance will be the most impacted, as the new revenue standard will supercede nearly all existing GAAP revenue-recognition guidance, including the industry-specific guidance. Some of the industries that will be most affected include telecoms and information technology, entertainment, real estate, oil and gas, and industries where performance-based fees are common.

The new revenue standard (for GAAP reporting entities) is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For all other entities, the new revenue standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within reporting periods after December 15, 2018. Early adoption is not permitted for public companies. For nonpublic companies, early adoption is permitted in the United States, but no earlier than the effective date for public entities.

"Although the FASB has tentatively decided to delay the effective date, we strongly recommend that tax accounting and tax-return preparers begin evaluating the new revenue standard now," says April Little, a partner at Grant Thornton LLP, who serves as the firm's international financial reporting standards (IFRS) tax practice leader, as well as tax accounting and financial reporting leader. Given the general nature and timing of tax accounting and compliance, tax professionals who wait for the accounting group to communicate any changes will likely struggle to understand the sweeping changes in revenue recognition accounting policies, to understand how taxes are impacted, to evaluate potential accounting method changes, to include these in the tax provision, and to prepare for the tax returns, she explains.

Impetus Behind New Standard

What was the impetus behind the new standard? In general, says Little, the FASB issued the new revenue recognition standard (ASC Topic 606, "Revenue from Contracts with Customers," usually referred to as the "new revenue standard") to accomplish two key objectives: converge US GAAP and IFRS revenue recognition guidance and increase comparability and consistency in reporting through a single revenue recognition standard.

The new revenue standard creates major changes for the FASB and specific changes for the International Accounting Standards Board (IASB, which with FASB are referred to as the Boards). Existing US GAAP includes hundreds of pieces of literature and guidance, often industry-specific, which have been developed over several decades. On the other hand, existing IFRS includes two revenue standards and a handful of interpretations with minimal application guidance. Revenue recognition experts have criticized the IFRS approach as lacking in critical areas, such as multiple element arrangements.

"The new revenue standard is the result of a focused effort...