In the ongoing movement to new methods for recognizing revenue in financial statements, the American Institute of Certified Public Accountants has issued yet more new guidance for companies to consider.
The AICPA’s Financial Reporting Executive Committee issued 20 new “working drafts” that address various implementation issues companies have raised. FinREC’s 16 industry task forces are amassing and sharing views on how to apply the new principles-based revenue recognition standard to specific sectors that are accustomed to the industry-specific accounting methods under current GAAP.
FinREC is looking for public comment on the latest batch of working drafts so they can be incorporated into the AICPA’s evolving revenue recognition guide. While it is not authoritative under Generally Accepted Accounting Principles, the guide is meant to help companies understand how peer companies in their respective industries are parsing and applying the new requirements.
The new standard on revenue recognition takes effect Jan. 1, 2018, ushering in a new five-step method that all companies must follow to determine when and in what amounts to recognize revenue in financial statements. That means calendar-year companies are in their last quarter of reporting revenue under current requirements.
After the Financial Accounting Standards Board issued the new standard in 2014, it made a handful of corrections and clarifications called for through the transition resource group that was fielding questions. The AICPA FinREC process is further addressing implementation questions by focusing on those concerns raised by industry groups that have followed rules specific to their industry sector until now.
The latest batch of working drafts emerge mostly from the task force on power and utility and the task force addressing oil and gas. In those sectors, the drafts address questions like how to determine the standalone selling price for commodities and how to account for partial terminations and blend-and-extend contract modifications. They tackle the timing of revenue recognition from the sale of electricity and capacity, from self-generated renewable energy credits, and the sale of oil and gas. They also touch on inventories, joint operating agreements, derivatives, and more.
Outside those sectors, FinREC has issued additional drafts of interest to airlines, asset managers, construction contractors and entities in gaming, health care, and telecommunications. Those drafts deal with questions on the timing and classification of certain commissions, co-branded credit care arrangements, contract costs, loyalty co-branding arrangements, risk-share arrangements, and certain wireless transactions.