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Revenue Recognition

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Revenue Recognition: Where it Will Take Us

By Robert Bloom and Jacob Kamm

Financial Executive • SUMMER 2014

FINANCIAL REPORTING

Since 2008, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have collaborated on a converged revenue recognition standard. Current U.S. Generally Accepted Accounting Principles (GAAP) standards related to revenue recognition are essentially rules-based, containing over 200 specific requirements related to revenue recognition. In FASB's news release of May 28th, Chairman Russell Golden stated "the [new] revenue recognition standard represents a milestone in our efforts to improve and converge one of the most important

areas of financial reporting. It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance." The wide-ranging converged standard eliminates detailed industry-specific codification contained in GAAP and streamlines revenue recognition guidance by superseding numerous standards issued by the FASB, the Securities and Exchange Commission (SEC), the Emerging Issues Task Force (EITF), and the American Institute of Certified Public Accountants (AICPA).

The converged revenue recognition standard acts as a roadmap on how standard setters will approach other issues, including leasing.

SUMMER 2014 • FinancialExecutive

Fundamental to the new standard is that revenue is recognized upon both the transfer of goods and services and the fulfillment of specific aspects of performance set forth in the contract.

However, because the new standard is more principles-based, contracts may be constructed to recognize revenue when it is the company's interest to do so. Due to more detailed disclosure requirements, most companies will be impacted by the standard....

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