The new revenue recognition standard outlines five steps for proper compliance. At the surface, these steps seem simplistic. However, there are many components that should be considered within each step based on your process and industry. Previous courses in this series have covered the standard at a high level and evaluated steps one through four of the standard. They are:
Complying with the Revenue Recognition Standard
Revenue Recognition: Considerations for Identifying the Contract - Part One and Part Two
Revenue Recognition: Considerations for Performance Obligations – Part One and Part Two
Revenue Recognition: Considerations for Transaction Price – Part One and Part Two
Revenue Recognition: Allocate Transaction Price to Performance Obligations
This segment is designed to evaluate Step Five of the new model dealing with recognizing revenue which is the final step in applying the new revenue recognition standard. For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. For performance obligations satisfied over time, an entity must decide how to appropriately measure the progress and completion of the performance obligation. A performance obligation is satisfied when or as control of the good or service is transferred to the customer. There are several issues companies should consider in applying step 5 of the standard:
Determining if a Performance Obligation is satisfied over time
Identifying indicators of transfer of control of goods/services
Utilizing input and output methods to measure progress of revenue recognition
Understanding stand-ready obligations and how to apply discounts.
Within this segment, we will cover the aspects of recognizing revenue.