Revenue Recognition Rule Changes Essay

Open, View, and/or
Download this Document

Total Length: 963 words ( 3 double-spaced pages)

Total Sources: 2

Page 1 of 3

AUS 2016-08 Analysis

The Accounting Standards Update (ASU 2016-08) covers the topic "Revenues from Contracts with Customers". This move was made to bring the FASB standards more in line with IASB standards, as part of the effort to converge US GAAP with IFRS standards. The main provisions of this update are as follows. "An entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services." This sounds fairly straightforward. To achieve this core principle, "an entity should adapt the following steps:

· Identify the contract(s) with a customer

· Identify the performance obligations in the contract

· Determine the transaction price

· Allocate the transaction price to the performance obligations in the contract

· Recognize revenue when the entity satisfies a performance obligation

The FASB notes that "the amendments do not change the core principle" but rather "clarify the implementation guidance on principal versus agent considerations."

This guidance is that when an agent is contracted to perform on the original obligation, the entity must recognize revenue upon completion of performance by the agent. If there is any revenue such as fees or commissions that accrue to the entity as the result of arranging performance by the agent, that revenue should also be recognized at the time when the agent completes performance.

Stuck Writing Your "Revenue Recognition Rule Changes" Essay?

View All Our Example Revenue Recognition Rule Changes Essay

Have A Custom Example Essay Written

Thus, the entity needs to further break down the contractual obligation, to determine which obligations are to be met by the agent, to know when the agent has satisfied performance, and to also have controls in place to assess the transfer of control of goods or the completion of services by the agent. This way, the revenue can be recognized for the appropriate time period. The onus is on the entity to control and track performance, and recognize revenue upon completion of performance, and to ensure that this revenue recognition occurs within a timely manner.

The FASB issued this update to bring about alignment with IFRS. The amendment did not change the core principles of revenue recognition within GAAP, but it was felt that there is a need to clarify the implementation of this in practice, particularly where agents are concerned, to align with IFRS.

In broad, this move was made as part of the larger process of convergence between US GAAP and IFRS. For many years, this was one of the major issues in accounting, and resulted in a number of changes to GAAP, to align more with international standards. The need for clarification may have come about anyway – it is valuable practice to have guidance on revenue recognition issues, to ensure that companies are recognizing revenue consistently, and further to protect against….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Revenue Recognition Rule Changes" (2017, November 26) Retrieved June 5, 2026, from
https://www.aceyourpaper.com/essays/revenue-recognition-rule-changes-2166587

Latest MLA Format (8th edition)

Copy Reference
"Revenue Recognition Rule Changes" 26 November 2017. Web.5 June. 2026. <
https://www.aceyourpaper.com/essays/revenue-recognition-rule-changes-2166587>

Latest Chicago Format (16th edition)

Copy Reference
"Revenue Recognition Rule Changes", 26 November 2017, Accessed.5 June. 2026,
https://www.aceyourpaper.com/essays/revenue-recognition-rule-changes-2166587
   

Open, View, and/or
Download this Document
order custom essay example