The Financial Accounting Standards Board (FASB) confirmed that it expects the final revenue recognition standard to be issued by late May. The FASB had originally targeted the first quarter of 2014 for issuance.
The issuance of this standard will be the culmination of more than a decade of work between the FASB and the International Accounting Standards Board (IASB). The development of a single revenue recognition standard was especially time-consuming given the fact there is currently more than 200 pieces of specialized and/or industry-specific revenue recognition guidance.
Revenue Recognition Model
The proposed guidance requires the use a five-step model in order to recognition revenue from customer contracts. The five steps are:
- Identify contract(s) with a customer.
- Identify the separate performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the separate performance obligations.
- Recognize revenue when the entity satisfies each performance obligation.
The final standard is expected to be effective in 2017 for public companies and 2018 for private companies.
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