Since 2008, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have collaborated on a converged revenue recognition standard. Current U.S. Generally Accepted Accounting Principles (GAAP) standards related to revenue recognition are essentially rules-based, containing over 200 specific requirements related to revenue recognition. In FASB's news release of May 28th, Chairman Russell Golden stated "the [new] revenue recognition standard represents a milestone in our efforts to improve and converge one of the most important areas of financial reporting. It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance."
The wide-ranging converged standard eliminates detailed industry-specific codification contained in GAAP and streamlines revenue recognition guidance by superseding numerous standards issued by the FASB, the Securities and Exchange Commission (SEC), the Emerging Issues Task Force (EITF), and the American Institute of Certified Public Accountants (AICPA).
However, because the new standard is more principles-based, contracts may be constructed to recognize revenue when it is the company's interest to do so. Due to more detailed disclosure requirements, most companies will be impacted by the standard. Since the new standard emphasizes the fulfilling of performance obligations in recognizing revenue, current GAAP approaches including percentage of completion on longterm contracts, completed contract, installment sales, and cost recovery will be changed. In fact, those terms will no longer be used.
With the jointly issued ASU 2014-09 and IFRS 15, the FASB and the IASB are closer to overall harmonization of accounting standards. Their convergence efforts can now focus on the few remaining significant conflicting standards, the most important of which relates to lease accounting.
Summary of ASU 2014-09 Revenue from Contracts with Customers and IFRS 15
Because current GAAP contains more than 200 specialized or industry-specific revenue recognition-related standards in comparison to the IASB's limited requirements in IAS 11 and IAS 18, the FASB and IASB formally recognized the need in 2008 for a converged revenue recognition standard.
On November 14, 2011, the IASB and FASB jointly issued for public comment a revised draft proposal for revenue recognition meant to improve and unify existing IASB and FASB standards related to revenue recognition from customer contracts. The 2011 exposure draft amended an earlier jointly published exposure draft issued on June 24, 2010, after the public comment phase of that draft indicated a need for further revision.
On May 28, 2014, a final converged standard entitled Revenue from Contracts with Customers was issued jointly by the boards. The new standard is designed to improve globally the financial reporting of revenue, which previously often resulted in different financial...