Issues related to the upcoming revenue
recognition standard
The
new revenue recognition standard will be effective in 2017 for public
companies, and in 2018 for the private companies. There are five main changes,
which includes the time value of money and the transfer of the control model. In
addition, it also is very costly to turn to the new standard.
The
main different between the old GAAP and the new GAAP in the control model is that,
companies should transfer control of the promised goods or services instead of
transfer the risk and rewards. In the current situation, companies pay
attention more in transferring the risk and rewards of goods, which are sold to
customers, and considerif the revenue is realized or earned. Compared to the
current rules, the new standards requires that the revenue is recognized when
the performance obligation of entities is satisfied with the customers. In
other words, it means that the revue will not recognized until the goods and
services are transferred and satisfied to the customers. This change may causelong-standing patterns of revenue recognition been influenced.
In the current GAAP, the time value
of money does not been considered. On the contract, the upcoming standards
consider how to deal with the time value of money. Sometimes the customers will
pay advanced, or delayed payment terms, so the time value of money is
considered by new standards to solve transaction price and the amount of recognized
under the special financial component. However, if the time estimate to pass
between customers payment and satisfaction of the underlying obligation is no
more than one year, then the companies can regard it for accounting purpose.
It
is very costly to follow the new standards andchange is not easy. Companies
have two way to prepare the new financial statements. First is the retrospective
analysis method. The retrospective analysis method requires that if companies
present the 2017s financial statements using the rules form new GAAP, they
also should prepare the financial statements of 2015 and 2016 under the new standards.
The second method is simplified transition method. This method means that companies
need to restate fanatical statements at year of adoption-dual tack revenue for
first year of presentation under the new GAAP. Both methodsmake it costly for
companies to prepare thefinancial statements. In addition, companies should pay
more attention to match the requirements of the new standard. For instance,
companies may hire experts or do research to address the changes. Companies
should also change the tax calculation, improve the technology to support
making changes, change the financial process or the companies structure. It is
costly and not easy when companies prepare the financial statements under the
new rules.
There
are many issues coming with the new standard, such as the time value of money
and the transfer of control model. It is costly for companies to follow the new
rules. So companies should know what the new rule is, and how to address
changes in advance.Issues related to the upcoming revenue
recognition standard The
new revenue recognition standard will be effective in 2017 for public
companies, and in 2018 for the private companies. There are five main changes,
which includes the time value of money and the transfer of the control model. In
addition, it also is very costly to turn to the new standard. The
main different between the old GAAP and the new GAAP in the control model is that,
companies should transfer control of the promised goods or services instead of
transfer the risk and rewards. In the current situation, companies pay
attention more in transferring the risk and rewards of goods, which are sold to
customers, and considerif the revenue is realized or earned. Compared to the
current rules, the new standards requires that the revenue is recognized when
the performance obligation of entities is satisfied with the customers. In
other words, it means that the revue will not recognized until the goods and
services are transferred and satisfied to the customers. This change may causelong-standing patterns of revenue recognition been influenced. In the current GAAP, the time value
of money does not been considered. On the contract, the upcoming standards
consider how to deal with the time value of money. Sometimes the customers will
pay advanced, or delayed payment terms, so the time value of money is
considered by new standards to solve transaction price and the amount of recognized
under the special financial component. However, if the time estimate to pass
between customers payment and satisfaction of the underlying obligation is no
more than one year, then the companies can regard it for accounting purpose. It
is very costly to follow the new standards andchange is not easy. Companies
have two way to prepare the new financial statements. First is the retrospective
analysis method. The retrospective analysis method requires that if companies
present the 2017s financial statements using the rules form new GAAP, they
also should prepare the financial statements of 2015 and 2016 under the new standards.
The second method is simplified transition method. This method means that companies
need to restate fanatical statements at year of adoption-dual tack revenue for
first year of presentation under the new GAAP. Both methodsmake it costly for
companies to prepare thefinancial statements. In addition, companies should pay
more attention to match the requirements of the new standard. For instance,
companies may hire experts or do research to address the changes. Companies
should also change the tax calculation, improve the technology to support
making changes, change the financial process or the companies structure. It is
costly and not easy when companies prepare the financial statements under the
new rules. There
are many issues coming with the new standard, such as the time value of money
and the transfer of control model. It is costly for companies to follow the new
rules. So companies should know what the new rule is, and how to address
changes in advance.