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View RevRec as an Opportunity to Transform and Improve Processes
The extent of impacts will vary by industry and by organization within the industry, but all companies will be impacted. Some of the changes this will cause include additional or expanded disclosures, the inclusion of additional estimates and judgments in external Financial Reporting, and most likely new or modified business processes and controls.
It is important to note the last impact item from above: new or modified business processes and controls. The new standard is not just an accounting exercise, but rather extends well past technical accounting into core business processes.
To get lots of detail on how to leverage these opportunities,, click here to read Larry McKinney's blog post "Revenue Recognition Projects: Driving Transformational Actions" on LinkedIn Pulse.
Read all of the RevRec Ready Hot Tips here.
In the Five Step Revenue Recognition process, Step Four requires that entities allocate the Transaction Price to each Performance Obligation (POB) based on its relative Standalone Selling Price. The Standalone Selling Price is the price at which the entity would sell a good or service separately to a customer.
Depending on the contract terms and conditions of a sale, products that have been sold by a seller to a buyer may have a potential Right of Return. The potential return of merchandise by a customer must be accounted for in accordance with GAAP (Generally Accepted Accounting Principles) whenever a buyer has a future Right of Return. This may be in accordance with formal or informal agreements between buyer and seller.
According to revenue recognition regulations, when a Right of Return exists, a seller may or may not be able to recognize all of the revenue at the time of sale.
Last month, FASB and the International Accounting Standards Board (IASB) reaffirmed amendments they had previously proposed to in order to clarify principal vs. agent guidance in the new, converged revenue recognition standard (See more detail at Journal of Accountancy).
I have received a plethora of questions from people who read my last post, Revenue Recognition Changes are Coming: Make 2016 Your RevRec Year-of-Action, but the most common theme was: “how do I get started?”
