Why a delay is needed... 

On April 29, 2015, the FASB (Financial Accounting Standards Board) released the Proposed Accounting Standards Update (ASU) No. 2015-240, which proposes a one-year delay for most businesses to adopt the new revenue recognition standard. First, what new revenue standard am I talking about?

In May 2014, the FASB published ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU created a new Topic 606 and effectively converges with the IASB’s (International Accounting Standards Board) IFRS 15 (International Financial Reporting Standards) of the same name. It is generally considered the most important standard released by FASB in recent years.

Prior to ASU 2014-09, GAAP’s revenue recognition guidance consisted of broad concepts with numerous revenue requirements for specific industries and transactions. The problem has been that such industry-specific guidance has often resulted in different interpretations for similar transactions. IFRS, on the other hand, had only provided very limited guidance that often proved insufficient whenever complex transactions were involved.

So, the FASB and the IASB have been working on a joint project to both clarify the revenue recognition principles and create a single common principles-based method for companies to use to calculate revenue.

Under this latest FASB proposal, public companies using GAAP for their financial statements would have to implement the new standard for reporting periods beginning after December 15, 2017, a one-year delay. Private companies would also have an additional year, creating a 2018 effective date.

Why the proposed delay? Shortly after the release of the new standard, preparers of financial statements began asking for a delay. Several concerns were mentioned such as:

• The need for new IT solutions to support it.
• The requirement to review customer contracts which may represent a sizeable number and may have long contract terms.
• The necessity of implementing new internal controls.
• The need to educate staff members in its application.

Add to the above, certain clarifying changes that are needed to resolve several implementation problems and this delay becomes almost inevitable. Certainly further clarification of some of the new standard’s requirements, along with adding some illustrative examples would be worth waiting for.

The FASB has recently (at the end of May) closed its 30-day comment period. The IASB is also considering a possible delay but its comment period isn’t due to close until July 3, 2015