Alert: FASB Accounting Standards Update No. 2014-09 - Revenue from Contracts with Customers

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2014-09 - Revenue from Contracts with Customers

The long awaited new US Generally Accepted Accounting Principles (GAAP) revenue recognition Standard, Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (Topic 606), was released by the Financial Accounting Standards Board (FASB) on May 28, 2014. The Standard was a joint effort by the FASB and International Accounting Standards Board (IASB) thereby creating common revenue recognition guidance for US GAAP and International Financial Reporting Standards (IFRS).

The new guidance identifies how and when entities reporting under US GAAP should recognize revenue. Specifically, an entity should recognize revenue based on the transaction price, which is the amount of consideration the entity expects to be entitled to in exchange for transferring promised goods or services. A single principles-based, five-step revenue model must be applied to all contracts with customers; the steps to be applied are as follows:

  • 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 price to the performance obligations in the contract.
  • Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. A public entity may be any one of the following:

  • A public business entity.
  • A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
  • An employee benefit plan that files or furnishes financial statements to the Securities Exchange Commission (SEC).

For all other entities (i.e., non-public entities), ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A non-public entity may opt for earlier application in accordance with one of the following options:

  • An annual reporting period beginning after December 15, 2016, including interim periods within that reporting period (public entity effective date).
  • An annual reporting period beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017.
  • An annual reporting period beginning after December 15, 2017, including interim periods within that reporting period.

To access the full script of ASU No. 2014-09, click here.

This communication contains a general overview of the topic and is current as of May 28, 2014. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2014. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.