Fasb Asc 606 Revenue from Contracts with Customers Effective Date

FASB ASC 606 Revenue from Contracts with Customers Effective Date: What You Need to Know

In May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard for recognizing revenue from contracts with customers – FASB ASC 606. This standard replaces several industry-specific revenue recognition rules and it has been issued with the aim of providing a more consistent and comprehensive approach to revenue recognition across all industries.

FASB ASC 606 provides a five-step model for recognizing revenue from customer contracts. Firstly, companies must identify the customer contract and then identify the separate performance obligations in the contract. Secondly, companies must determine the transaction price for the contract, which represents the amount of consideration that the company expects to receive from the customer in exchange for its goods or services.

The third step is to allocate the transaction price to the separate performance obligations in the contract, based on their relative standalone selling prices. The fourth step is to recognize revenue when (or as) each separate performance obligation is satisfied. Lastly, companies must disclose any significant judgments, estimates, and changes in their revenue recognition policies.

The effective date for ASC 606 was originally set for annual reporting periods beginning after December 15, 2016, for public entities, and December 15, 2017, for non-public entities. However, due to the complexity of the new standard and the need for companies to make significant changes to their accounting systems and processes, the FASB granted a one-year deferral to these dates.

Therefore, the current effective date for ASC 606 is annual reporting periods beginning after December 15, 2017, for public entities, and December 15, 2018, for non-public entities. However, early adoption is permitted for both public and non-public entities for annual reporting periods beginning after December 15, 2016.

It is important for companies to make sure that they are prepared to comply with FASB ASC 606 by the effective date. This includes reviewing their current policies and procedures for recognizing revenue, identifying any significant judgment areas, and identifying the separate performance obligations in their customer contracts. Companies will also need to develop new accounting policies and implement new internal controls and processes to ensure compliance with the new standard.

In conclusion, FASB ASC 606 is a major change to revenue recognition practices that will affect companies across all industries. The new standard provides a more comprehensive and consistent approach to revenue recognition and is aimed at improving transparency and comparability between companies. The effective date for ASC 606 is fast approaching, and companies need to ensure that they are prepared to comply with the new requirements. By taking the necessary steps to prepare for the new standard, companies can ensure a smooth transition to the new revenue recognition practices.

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