On May 28, 2014, the FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) issued a joint standard on recognizing revenue from contracts with customers. The new standard, ASC 606, Revenue from Contracts with Customers, is part of the continuing efforts between the two boards to develop a set of international accounting standards to improve comparability between financial reporting.
The main objective of ASC 606 is to provide a framework to "depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good". ASC 606 is aimed to provide consistent principles for recognizing revenue regardless of industry, improve ways companies can identify and recognize revenue, simplify financial reporting, and improve usefulness of the financial disclosures.
ASC 606 provides the following five steps to assist companies in recognizing revenue from contracts with customers:
1) Identify the contract with a customer
2) Identify the performance obligations (promises) in the contract
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations in the contract
5) Recognize revenue when (or as) the reporting organization satisfies a performance obligation
For public companies, the effective date for implementing the new standard is for annual periods beginning after December 15, 2016, including interim reporting periods within those periods. Early application is not permitted for public entities reporting under U.S. GAAP.
For non-public companies, the effective date is for periods beginning after December 15, 2017, and interim reporting periods with annual reporting periods beginning after December 15, 2018. Early application is permitted for non-public entities with some limitations.