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September 1, 2015

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Proposed Change to Revenue Recognition Standard

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By Linda Marie Pearson, CPA, CFE

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) to clarify the standard on recognition of revenue from contracts with customers.

Since the release of the revenue standard in May 2014, FASB and the International Accounting Standards Board (IASB) have been working together to address potential implementation issues that could arise when organizations implement the new revenue standard. The FASB-IASB Joint Transition Resource Group for Revenue Recognition (TRG) objectives include helping stakeholders to better understand specific aspects of the new revenue standard.

The proposed ASU is directed at clarifying the implementation of the revenue recognition rule as it relates to the differences in recognizing revenue in the gross or net amounts of consideration in which is expected to be exchanged for the good or service. For those companies who directly provide goods / services to a customer (“principal”), they are required to recognize the gross amount. For those companies who are considered to be an agent, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party. The standard provides detailed guidance on determining if the entity is consider either a principal or an agent related to the transaction.

To read the proposed ASU, visit the FASB website. The deadline for public comment is October 15, 2015.

If you have any questions, please feel free to contact me, Linda Marie Pearson, directly at 401-752-0566.

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