On May 28, 2014, the Financial Accounting Standards Board (FASB), the entity responsible for US generally accepted accounting principles (US GAAP), and the International Accounting Standards Board (IASB), the entity responsible for international financial reporting standards (IFRS), jointly issued a new, converged accounting standard on revenue recognition. The new standard, which applies to both US GAAP and IFRS, is intended to improve and align US and international financial reporting of revenue from contracts with customers and their related costs.

The core principle of the new standard is that an entity should recognize revenue from a contract with a customer when it transfers goods or services to the customer in an amount that reflects the consideration it receives, or expects to receive, in exchange for those goods or services. The new standard outlines the following steps an entity should take to achieve this core principle:

The new standard will also:

The new revenue standard will be introduced into the FASB's Accounting Standards Codification as new Topic 606, Revenue from Contracts with Customers. Topic 606 replaces the existing guidance on revenue recognition in Topic 605. The new standard will be included in IFRS as IFRS 15, Revenue from Contracts with Customers. IFRS 15 replaces International Accounting Standard (IAS) 18, IAS 11 and related Interpretations.

While the new standards reach the same conclusions on all requirements for accounting for revenue from contracts with customers, there are minor differences between the US GAAP standard and the IFRS standard on the following topics:

For public entities, the new standard takes effect for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Public entities are not permitted to apply the new standard before this date.

For non-public entities, the new standard takes effect for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Non-public entities may elect to apply the new standard earlier for the following periods:

Update: On April 29, 2015, the FASB and the IASB issued a proposal that would defer the effective dates of the new standard by one year (see Legal Update, FASB and IASB Propose One-year Deferral of Revenue Recognition Accounting Standard).

To learn more about financial reporting in the US, see Practice Notes, Financial Reporting in the US: Basic Concepts and Financial Reporting in the US: Key Topics for Corporate Counsel.