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The American Institute of Certified Public Accountants (AICPA) has issued the first online edition of its Audit & Accounting Guide on Revenue Recognition in response to the new standards from the Financial Accounting Standards Board (FASB).
Public companies are required to apply the FASB's new accounting standard, Revenue from Contracts with Customers, to annual reporting periods beginning after December 15, 2017. AICPA has pointed out many companies are therefore now in the process of making accounting policy decisions as they prepare for the effective date.
The core principle of the new revenue recognition standard is for companies to recognize revenue in their accounts only when goods and services are transferred to or performed for their customers, and in amounts that reflect the payment to which the company is then entitled in exchange for those goods or services.
A survey of public companies released in October last year found that eight percent of respondents still had not started an initial assessment of the new standard, while three-quarters were still assessing. AICPA has stressed the importance of its timely implementation.
The online publication summarizes key accounting guidance regarding whether and when revenue should be recognized; identifies circumstances and transactions that may signal improper revenue recognition; summarizes key aspects of the auditor's responsibility to plan and perform an audit; describes procedures that the auditor may find effective in limiting audit risk arising from improper revenue recognition; and describes audit challenges that may be brought on by the changes in revenue recognition.
In particular, the guide also includes accounting implications of adopting the new revenue recognition standard for entities in the aerospace and defense industry and the investment asset management industry. It is planned that future editions will address accounting implications for other industries.
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