Oh, what the new revenue recognition standard has spawned. The American Institute of CPAs (AICPA) recently released an online guide that explains how the standard will affect accounting and auditing in specific industries.
At 157 pages, Audit & Accounting Guide on Revenue Recognition is a product of the AICPA’s Financial Executive Reporting Committee (FinREC), Revenue Recognition Working Group, and 16 industry task forces that have convened to address what promises to be the standard’s “top-to-bottom review” of companies’ and nonprofits’ revenue recognition.
The aerospace and defense and asset management industries are the first to be included in the guide. Future editions will address the accounting and audit implications of the new standard for these and other industries.
The changes are the result of the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent ASUs amending FASB Accounting Standards Codification 606. Public companies are required to apply the new standard to annual reporting periods beginning after Dec. 15, 2017.
The AICPA revenue recognition guide addresses the following six issues:
The responsibilities of management, directors, and audit committees for reliable financial reporting.
Key accounting guidance for whether and when revenue should be recognized in accordance with GAAP.
The circumstances and transactions that may signal improper revenue recognition.
Key aspects of the auditor’s responsibility to plan and perform an audit under Generally Accepted Auditing Standards.
Procedures that auditors may find effective in limiting audit risk arising from improper revenue recognition.
Audit challenges that may be incurred by revenue recognition changes.
Over the past year, potential revenue recognition implementation issues were identified by each industry task force and exposed for informal comment. Once those issues become final, the guide will be updated.
Aerospace and defense and asset management, for example, aren’t yet complete, though the former is far along. The online nature of the guide allows frequent updates rather than waiting until an industry sector is fully completed.
Case in point, FinREC recently issued working drafts for the aerospace and defense, telecommunications, and timeshare industries.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.