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Construction companies have long relied on a mishmash of GAAP and industry-specific guidance for reporting revenues. Yet doing so often produced inconsistent financial statements that confused and frustrated key stakeholders such as banks and sureties. The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This Standard Update addresses revenue recognition under U.S. Generally Accepted Accounting Principles (GAAP) and attempts to standardize and simplify the revenue recognition process for customer contracts across different industries and geographic locations.

In Sean Spitzer's recent article, "Prepare Now for Revenue Recognition Changes," he provides a clearer picture of the new standard (ASU No. 2014-09, Revenue from Contracts with Customers), describes the new standard's affect on certain industries and recommends next steps for planning. Below, we outline changes for your borrowers that you should be aware of.

Contributed by: Sean Spitzer, Partner

Since 2002, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working on converging U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). There’ve been successes and failures along the way, but now the convergence effort appears to have run its course. Going forward, U.S. standard setters propose an informal, collaborative model that will minimize differences in financial reporting, in lieu of the IASB’s one-size-fits-all approach. Here’s an overview of global accounting standards — past, present and future.

Start planning now for revenue recognition changes

Note: This article, originally published September 2014 has been updated to reflect a FASB notification issued March 2015.

In June of 2014, FASB and the IASB issued new joint guidance that addresses one of the most important measures investors use when assessing a company’s performance and prospects — revenue. FASB’s version, communicated in ASU No. 2014-09, Revenue from Contracts with Customers, standardizes and simplifies the revenue recognition process for customer contracts across different industries and geographic locations. It also requires more comprehensive footnote disclosures for all types of public and private companies. This article provides an overview of the converged guidance, along with a brief look at the potential impact on certain industries. Note: This article, originally published September 2014 has been updated to reflect a FASB notification issued March 2015. The new revenue recognition standard takes effect for non-public entities for annual reporting periods beginning after December 15, 2018 (originally December 2017). According to Michael Cohn, Editor-in-Chief of Accounting Today (April 2, 2015), "In terms of an early adoption provision, FASB decided to permit both public and nonpublic entities to adopt the new revenue standard early, but not before the original public entity effective date (that is, annual periods beginning after Dec. 15, 2016). A public entity would apply the new revenue standard to all interim reporting periods within the year of adoption. A nonpublic entity would not be required to apply the new revenue standard in interim periods within the year of adoption."