Transition Timing to New Revenue Recognition Standards – Interim Financial Reporting
October 29, 2018
Matt Wright
Under the new U.S. GAAP reporting standard (ASC 606), when must a business begin recognizing revenue? For annual financial statements, the answer is straightforward — public business entities and entities with certain types of bond debt must start recognizing revenue under the new standard in 2018; the start date is 2019 for all other business entities.
But many businesses submit monthly or quarterly financial statements to their bank, and those statements must also adhere to U.S. GAAP. This raises the following question:
If I send a financial statement to my bank dated March 31, 2019, must it include retrospective adjustments for adoption of ASC 606 and must I recognize revenue accordingly during the period?
For non-public entities, the answer is no. Under ASC 606, non-public business entities don’t start recognizing revenue until the end of 2019. Any 2019 financial statements issued for interim periods should adhere to the revenue recognition requirements under ASC 605.
For public business entities, however, the revenue recognition regulations under ASC 606 applied for all annual or interim financial statements starting in 2018.
Below is the authoritative guidance from Accounting Standards Update 2015-14 — Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date:
“The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and 2 interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in Update 2014-09.”
Our expert team at Geffen Mesher is ready and prepared to help navigate these changes for your business.
Questions? Contact: