Landmark Revenue Recognition Standard Deferred for One Year
On July 9, the Financial Accounting Standards Board (FASB) agreed to give companies an extra year to comply with its landmark revenue recognition standard. Now Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, will be effective for public companies with fiscal years that start after December 15, 2017. The standard should be applied to the first financial reports filed in those fiscal years, which for public companies will mean the first quarterly filing for 2018.
Private companies will apply the standard in fiscal years that start after December 15, 2018, and for quarterly and other interim financial statements in fiscal years that start after December 15, 2019. For all companies that have already begun implementing the new standard, the FASB also will permit early adoption in fiscal years that begin after December 15, 2016.
FASB member Marc Siegel, who cast the dissenting vote on the one-year delay, agreed with giving companies extra time. But he opposed the provision that allows companies to adopt the standard as of the original 2017 effective date. “It’s going to be hard enough to understand trends over time when transitioning to the new standard, but to then introduce peer comparisons that will be made difficult by people doing it at different times truly exacerbates the issue,” Siegel said.
FASB member Daryl Buck, who ultimately voted in favor of a one-year delay, said he preferred a two-year deferral. He predicts that the FASB will consider another delay a year from now because companies still won’t be ready to adopt the standard. “I believe we need to ensure an orderly transition here for the system as a whole,” Buck said. “I recognize completely that that may introduce a longer period of noncomparability, but my thought is comparability won’t matter much if we have chaos.”
ASU 2014-09 is largely converged with International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers. On July 22, the International Accounting Standards Board approved a one-year deferral of IFRS 15. But the international board has no plans to consider a two-year deferral.