A wide assortment of new disclosures is expected to be one of the biggest challenges for financial statement preparers as they implement the new revenue recognition guidance issued last month by FASB and the International Accounting Standards Board (IASB).
Public companies today voluntarily provide investors with many disclosures about revenue in their news releases and earnings calls. Monthly reports prepared by private companies often give a lot of detail about revenue that is not required by accounting standards.
But FASB member Marc Siegel said that, remarkably, GAAP in the past has prescribed few disclosures related to revenue recognition.
“So this will standardize a set of disclosures for companies to provide, including an objective for how to disaggregate or break out the revenue in the footnotes,” he said.
During a recent webcast, Deloitte LLP Partner Kristin Bauer, CPA, provided an overview of the disclosures that the new standard requires.
Companies are required to disclose revenue and impairment losses from contracts with customers separately from other sources of revenue or impairment, she said. Qualitative and quantitative disclosures are required, including:
A minor difference between the substantially converged FASB and IASB standards involves disclosures on an interim basis. Both boards will require the disaggregated revenue to be disclosed on an interim and annual basis. FASB also will require contract balance and remaining performance obligation disclosures on an interim and annual basis, but the IASB will require those disclosures on an annual basis only.
The rest of the disclosures will be required annually by both boards.
“The FASB did vote to have a requirement that certain disclosures be required for interim,” FASB Chairman Russell Golden explained, “and that’s because in the U.S. capital markets there is oftentimes more interim financial reporting than in other capital markets around the world.”
Experts say companies will need to study these disclosure requirements to make sure they are capturing the information the standard demands. While companies will need to adjust to these requirements, board members say they will provide useful information about an extremely important metric.
“You’ll get a much more multidimensional picture about revenue recognition at a company in the footnotes than you have in the past,” Siegel said.
Source: Journal of Accountancy
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