Changes in Revenue Recognition Are Coming
In the upcoming year(s), your firm will need to pay closer attention to how revenue is reported because of current and upcoming changes in the Financial Accounting Standards Board (FASB) / International Accounting Standards Board (IASB) Revenue Recognition standards. These changes will impact the way you report revenue if your business has specific types of contracts and relationships with your customers.
As you know, revenue recognition is how you financially account for the product or service your company provides its customers. Unless you are a cash based business, this (revenue recognition) – in the past, has been at the discretion of your accounting team. However, recent changes to the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) may advance or delay this recognition of revenue.
Every firm should now be examining how they do business to insure they are compliant with these new standards. There may be tax implications at stake. It does not matter if you a one-person operation, or a multi-billion dollar enterprise – the new standards apply to all. The difference will be in the timing (the start date) of when the firm needs to come into compliance. The purpose of the changes is to unify accounting principles across industries.
With the new requirements, a firm’s revenue will now be based on agreed upon milestones / performance objectives. Examples of those milestones could be delivery of a package; partial completion of a construction project; IT projects.
Palazzo, Inc is a trusted resource to help you understand the evolving rules when it comes to revenue recognition.
