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Not-for-profit
revenue recognition: Review and next Steps

05.15.19

Introduction 

Beginning in 2014, the clock started ticking on FASB’s revenue recognition changes. With plenty of fair warning, the changes to revenue recognition including Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, along with subsequent updates from FASB are effective for nonpublic companies for fiscal years beginning after December 15, 2018. Subsequent updates—think ASU 2018-08—Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made—are not far behind (see our thoughts on this standard here). If they identify the transaction as nonreciprocal, the organization must complete consideration #2. 

The overarching goal of the changes to revenue recognition is to converge disparate standards across industries, all while making the information more useful to users. The core principle of the standard is “the organization should recognize revenue to depict the transfer of goods or service in an amount that reflects the payment for which the organization expects to be entitled for those goods and services.” 

A five-step process―a simplified approach 

To achieve that core principle, an organization will need to apply a five-step model to some of their revenues streams:

  • Identify the contract(s) with a customer
  • Identify the separate performance obligations
  • Determine the transaction price
  • Allocate the transaction price to the separate performance obligations
  • Recognize revenue when or as a performance obligation is satisfied

While the process can be broken down into five simple steps, the task of reviewing revenue streams and specific contracts can be quite daunting in implementation.

We are here to help

We recognize the difficult task ahead for our clients in analyzing their multiple contract vehicles and revenue streams in implementing the new standards. To help our clients through the process, we are offering revenue standard workshops. This workshop can be tailored to your needs, with an in-depth meeting to review the standard, consider your significant revenue streams and a walk through the five-step process. We will leave you with an easy to use template for analyzing future revenue streams along with recommendations for your current revenue recognition system and process. 

Don’t wait until the financial year has come to a close to review your processes and systems in place, we are available now to work with you to prepare for the new standard. Contact Chris Mouradian or Sarah Belliveau to find out how you can join the list of organizations getting ahead of the new standard.

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