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Accountants: Corporate Revenue Recognition
Posted on 8/21/16 at 7:48 pm
Posted on 8/21/16 at 7:48 pm
I work for a division of a Fortune 500 company and the big talk around the office is how new GAAP standards will change the way we recognize revenue next year (from Google, I assume this is FASB 606 rule). Our company makes high dollar machinery that's paid for by several progress payments over the course of a 2+ year contract.
I'm told the change affects us because we can no longer claim the revenue received by the progress payments until we deliver the machine. That means if we miss a scheduled quarter for a delivery we are out the full contract price, not just what's left outstanding
I'm far from an accountant and all these explainations have come from non-accountants. Can anyone with knowledge of the changes tell me if this sounds right? Doesn't really affect me directly, mainly just curious as I like to stay up on things like this.
Investors.com Article
I'm told the change affects us because we can no longer claim the revenue received by the progress payments until we deliver the machine. That means if we miss a scheduled quarter for a delivery we are out the full contract price, not just what's left outstanding
I'm far from an accountant and all these explainations have come from non-accountants. Can anyone with knowledge of the changes tell me if this sounds right? Doesn't really affect me directly, mainly just curious as I like to stay up on things like this.
Investors.com Article
2
Posted on 8/21/16 at 8:53 pm to Furbs311
Basically you will now recognize all revenue at the point of control transfer under a contract.
So if you miss a quarter then the revenue is completely picked up in the later quarter when the transfer occurs.
So if you miss a quarter then the revenue is completely picked up in the later quarter when the transfer occurs.
Posted on 8/21/16 at 9:14 pm to LSUFanHouston
I guess the fear is this will make it much easier to miss quarterly revenue projections (though I guess the following quarter will be sweat!).
What's the reason for the change?
What's the reason for the change?
Posted on 8/21/16 at 9:44 pm to Furbs311
accrue those progress payments as revenue
reverse in current year if contract falls through
charge off from prior year if contract falls through
reverse in current year if contract falls through
charge off from prior year if contract falls through
Posted on 8/21/16 at 9:48 pm to Furbs311
Convergence with IFRS
Substantially the same already. It should make it a little more difficult to smooth revenue though
Substantially the same already. It should make it a little more difficult to smooth revenue though
Posted on 8/21/16 at 9:58 pm to Furbs311
Judging by the article, it looks like it's leaves less discretion on when revenue is earned so it'll be more difficult for management to move revenue around in quarters to manipulate their quarterly earnings.
Posted on 8/22/16 at 8:44 am to southernelite
quote:
Judging by the article, it looks like it's leaves less discretion on when revenue is earned so it'll be more difficult for management to move revenue around in quarters to manipulate their quarterly earnings.
There is less ability to move earnings around based on "earn" dates, but the rules will require more estimating... which means...
Posted on 8/22/16 at 10:05 am to LSUFanHouston
My question is: what provisions in a contract allow you to use the cost to cost method (new version of poc)?
If for example I am building a billion dollar highway you can't satisfy the performance obligation of passing ownership until it is completed. So what provision in a contract would say that the customer "takes ownership" of the project as it is being completed?
If for example I am building a billion dollar highway you can't satisfy the performance obligation of passing ownership until it is completed. So what provision in a contract would say that the customer "takes ownership" of the project as it is being completed?
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