(Photo credit: Wikipedia Commons)
May 29, 2014
The American FASB and international IASB have teamed up to overhaul revenue reporting standards, impacting every industry from wireless service providers, to grocery retailers, to vehicle manufacturers. Moreover, the update will mark the first ever international revenue accounting standards.
On May 28, America’s own Financial Accounting Standards Board and the globally associated International Accounting Standards Board (IASB) – responsible for creating accounting regulations in the U.S. and worldwide, respectively – revealed a coordinated plan to simplify the mixture of revenue reporting standards in different nations and for different industries.
The U.S. and international accounting standards boards began collaboration in 2006 on what is now the first standard global revenue recognition ruling ever. Beginning in 2017, the landmark ruling will replace separate conflicting standards for the U.S. and other countries, as well as simplify and establish consistency in the measurement of performance for any company in the world. As a result, capital market investors will soon have increased confidence when comparing the earnings of companies at home with those of companies anywhere on the planet.
These new requirements will drastically alter how and when revenue is reported in innumerable industries. For example, car makers who include maintenance service with the purchase of new cars currently account for full purchase prices together with maintenance at the time of purchase. Under the new rules, revenues for vehicles are recognized upfront, and revenues for future maintenance services are separately assigned and not recognized until the time service is performed.
Conversely, wireless service providers who offer free or discounted mobile phones to customers who sign service contracts currently account for revenue month-to-month as clients make payments, without any regard for the cost of the free or discounted mobile device. Beginning in 2017, however, the customer’s overall expected revenue from monthly payments is accounted for with the purchase of the mobile phone, permitting wireless service providers to sooner recognize that revenue.
The general focus of the new approach to revenue recognition is when a customer takes control of the product or service, rather than when the customer makes a payment.
Meanwhile, critics have asserted that it will likely raise costs for all businesses as they direct attention to revamping their products and customer contracts in order to comply with or adapt to the new rules.
Recent developments in Accounting: PES CPE Accounting Courses
State specific requirements: CPE Requirements