The AICPA on June 23, 2017, released the 2017 edition of its Audit and Accounting Guide (AAG): Revenue Recognition.
The guide is intended to help accountants and auditors apply the FASB’s landmark revenue standard, Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers.
The 2017 edition adds material for three industries — airlines, telecommunications, and engineering and construction, and it updates the material for securities brokers, gambling companies, healthcare companies and software developers.
When the AICPA released the guide’s first edition in December 2016, it said it “provides in–depth coverage of audit considerations from risk assessment and planning to execution of the audit.” The guide addresses issues auditors have to consider when examining the revenue reported in a client’s financial statements, the internal controls for revenue, the risk of fraud and the assessment auditors have to make regarding the accuracy of the estimates management uses.
The guide is based on the work of the 16 industry task forces that worked under the AICPA’s Financial Reporting Executive Committee (FinREC) since the FASB released ASU No. 2014-09 and the IASB issued IFRS 15, Revenue From Contracts With Customers, in May 2014. It also reflects the guidance the FASB released in ASU No. 2016-08, Revenue From Contracts With Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), ASU No. 2016-10, Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.
In ASU No. 2014-09, the FASB established a five-step process in U.S. GAAP for recognizing revenue, identifying customer contracts, identifying the performance obligations sellers have to the customers, calculating the transaction price, allocating the price to the contract’s performance obligations and recognizing the revenue. The standard eliminated approximately 180 pieces of industry-specific accounting guidance in U.S. GAAP and replaced it with a principles-based model.
ASU No. 2016-08 was issued in March 2016 to clarify the implementation guidance for what the FASB calls principal-versus-agent considerations in the revenue recognition standard. A principal-versus-agent consideration applies to sales that involve two or more suppliers to a customer. The update to U.S. GAAP instructs each participant in the sale to determine whether they control the good or service and are entitled to the gross amount of the transaction or are acting as an agent and should collect only a fee or commission for arranging the sale.
The FASB published ASU No. 2016-10 in April 2016 to simplify and lower the cost of applying the guidance for identifying a performance obligation in Topic 606 and make it easier to understand the implementation of the revenue standard’s licensing guidance. The amendments in ASU No. 2016-12 clarify the assessment of the likelihood that revenue will be collected from a contract, the guidance for presenting sales taxes and similar taxes and the timing for measuring customer payments that are not in cash.
For in-depth analysis of the FASB’s revenue recognition standard, please see Catalyst: U.S. GAAP — Revenue Recognition, also on Checkpoint.
Additional analysis of the revenue standard can be found on Checkpoint in Accounting and Auditing Update Service, [AAUS] No. 2014-18 and the SEC Accounting and Reporting Update Service, [SARU] No. 2014-21 (June 2014): Special Report: Comprehensive Coverage of the New U.S. GAAP Revenue Recognition Requirements.
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