Annual Update for Accountants and Auditors: 2020

Chapter 3Revenue Recognition, Financial Instruments, and Leases

Learning objectives

• Determine the process required in applying the five steps of the new revenue recognition update.
• Recall the requirements of the current expected credit loss (CECL) model for measuring the impairment of financial instruments.
• Calculate the right-of-use (ROU) asset and corresponding lease obligation for lease agreements.

Introduction

FASB and the International Accounting Standards Board (IASB) have been working on three joint projects since 2007 to provide guidance on areas they felt needed improvement: revenue recognition, financial instruments, and leases. The revenue recognition standard and accounting for marketable debt and equity securities are now effective for all entities, and the CECL and lease standards have had their effective dates extended. Regardless of when the lease or CECL standard will be effective for your entity or clients, it is imperative that implementation processes begin now so that an entity will have the resources and information available when the standards are adopted.

FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

Why was this ASU issued?

In May 2014, FASB and the IASB completed their joint project on revenue recognition. FASB issued Accounting Standards Update (ASU) No. 2014-09 primarily to clarify the principles for recognizing revenue. Prior to the issuance of this update, revenue recognition guidance comprised more than 100 standards ...