The amendments affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The document details the various amendments and subsequent impact on company reporters.

The core principle of the guidance in Topic 606 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

• Identify the contract(s) with a customer;
• Identify the performance obligations in the contract;
• Determine the transaction price;
• Allocate the transaction price to the performance obligations in the contract; and
• Recognise revenue when (or as) the entity satisfies a performance obligation.

This standard is the US equivalent of IFRS 16, Revenue from Contracts with Customers, due to come into force in 2018. However, there are some areas of divergence.

The FASB states: ‘Although the amendments in this Update are not identical, and some are incremental, to the amendments the IASB decided to make to its final standard, Clarifications to IFRS 15, the FASB expects that the amendments generally will maintain the convergence that was achieved with the issuance of Update 2014-09 and IFRS 15 by reducing the potential for diversity arising in practice.’

The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09).

Due to a joint agreement between IASB and FASB, the standard was delayed and will have an effective date of 2018.

Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients is available here