In May 2014, the FASB issued a final standard on revenue recognition. FASB Accounting Standards Update (ASU) 2014-09 “Revenue from Contracts with Customers” (Topic 606) provides a uniform framework for revenue recognition and after its effective date will replace almost all revenue recognition guidance currently in place, including industry specific guidance such as; real estate, film development, mortgage banking, construction contracts, and so forth.
The ASU is effective starting December 15, 2016 for calendar year-end public entities and not-for-profit entities that have issued, or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or an over-the-counter market and certain employee-benefit plans. For all other calendar year-end entities, the ASU is effective beginning after December 15, 2017. As has been noted in the financial press however, there is a possibility these dates will move back as public companies in particular are already asking for additional time to address the issues raised by the update.
The new guidance added by ASU 2014-09 applies to contracts with customers, so it does not affect the existing guidance on Accounting for Contributions in Subtopic 958-605, or the methodology for determining whether something is an exchange transaction or a contribution. This new standard would apply to “exchange transactions” entered into by the not-for-profit which could be an incredibly wide range of activities, such as; memberships, trade shows, publications, training or educational seminars, industry research reports, tuition for a private school, private contracts, services for a fee, and on and on.
In fact, given the wide variety of transactions a not-for-profit could undertake that could be considered “Revenue from Contracts with Customers” the adoption of this standard will definitely require some analysis for many organizations. The AICPA has organized several industry specific task forces, including one focused on not-for-profits (in addition to the work of the AICPA’s Not-for-Profit Expert Panel) in order to develop some guidance to assist organizations in making some of these determinations. This will be helpful, I believe, as although there are many examples of the concepts of revenue recognition in the update, none of these examples are directly on-point with not-for-profit organizations, other than one dealing with a Hospital (which could apply).
Stay tuned for further blog postings addressing the details of the new revenue recognition standard.