By: Snigdha Bhargava and Jennifer F. Delos Santos
On Oct 28, 2014, the Zicklin Graduate Accounting Society (ZGAS) hosted a very interesting, informative, and important event entitled “Hot Topics in Accounting: Changes to Revenue Recognition.” The event’s discussion was focused on the new joint revenue recognition standard implemented by the FASB and IASB. The event’s speakers were: Professor Norman N. Strauss, former EY partner, recent retiree from professorship at Baruch College, and current Chair of Baruch’s Annual Financial Reporting Conference (one of the major accounting-related conferences in the United States), Mr. Jackson Day, EY Partner in Assurance Services, and Mr. Frank Ricca, EY Senior Manager in Assurance Services.
The following are discussion highlights that one who plans for a career in public accounting would not want to miss:
The changes to revenue recognition were announced in May 2014 and will be effective on January 1, 2017 for all filers. Implementation has been delayed because changes will be made retrospectively in order to achieve full comparability.
Companies can elect from either of the two following alternatives in regards to implementation: Apply the new standard as of the initial application date to all the contracts that are not complete on that date or recognize the cumulative effect as an adjustment to the opening balance of retained earnings and do not restate earlier years.
The new standard will be used to recognize revenue via the following five steps:
1. Identify the contract with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies the performance obligations.
The speakers provided the audience with a thorough breakdown of each of the above listed steps, with illustrative examples to reinforce their points.
The areas for which there will be few changes to the current rules (e.g. SEC or ETIF) are:
· Bill and hold sales
· Gross vs. net issues
· Consignment sales
· Non-refundable upfront fees (e.g., health club fees)
· Customer acceptance
At the close of the discussion, the event speakers left attendees with the following key points: The changes to revenue recognition should not to be taken lightly as there are many new steps to consider. Further, the learning process will undoubtedly continue well into the future.
Hello ZGAS Members,