Understanding Accounting Standards Update No. 2014-09: Revenue From Contracts With Customers

Accounting Standards Update No. 2014-09, also known as ASU 2014-09, is a significant change in revenue recognition standards that affects non-public entities with annual reporting periods beginning on or after December 15, 2019.

This update, issued by the Financial Accounting Standards Board (FASB), aims to provide a comprehensive framework for recognizing revenue from contracts with customers. It replaces numerous industry-specific guidelines and brings consistency and comparability to financial reporting.

The core principle of ASU 2014-09 is to recognize revenue when control of goods or services is transferred to customers, in amounts that reflect the consideration expected to be received for those goods or services.

Key Changes Introduced by ASU 2014-09

ASU 2014-09 introduces several key changes that entities need to understand and implement:

1. Identification of Performance Obligations: Entities need to identify performance obligations in contracts and determine whether they should be accounted for as separate units or bundled together.
2. Measurement of Transaction Price: The transaction price should be measured based on the consideration the entity expects to receive in exchange for transferring goods or services.
3. Allocation of Transaction Price: If a contract includes multiple performance obligations, entities need to allocate the transaction price to each obligation based on their relative standalone selling prices.
4. Recognition of Revenue: Revenue should be recognized when control of goods or services is transferred to customers, either over time or at a point in time, depending on the nature of the performance obligations.
5. Disclosure Requirements: ASU 2014-09 introduces enhanced disclosure requirements to provide users of financial statements with more information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Implications for Non-Public Entities

Non-public entities need to understand the implications of ASU 2014-09 and take necessary steps to ensure compliance. Some key considerations include:

• Assessing the impact of the new standard on revenue recognition policies and practices
• Evaluating contracts with customers to identify performance obligations and determine the timing of revenue recognition
• Implementing changes to accounting systems and processes to capture the required data for revenue recognition
• Training finance and accounting teams on the new standard and its implications
• Providing enhanced disclosures in financial statements to comply with the new requirements

It is crucial for non-public entities to seek professional guidance and support to navigate the complexities of ASU 2014-09 and ensure accurate and compliant financial reporting.

Conclusion

Accounting Standards Update No. 2014-09, ASU 2014-09, brings significant changes to revenue recognition for non-public entities. It replaces industry-specific guidelines with a comprehensive framework that aims to provide consistency and comparability in financial reporting.

Non-public entities must understand the key changes introduced by ASU 2014-09 and take necessary steps to comply with the new standard. Seeking professional guidance and support is essential to ensure accurate and compliant financial reporting.