Bridge over ocean
1 July 2016 Position Paper

Top-Line Watch: Investor Considerations in Run-up to 2018

Long-Term Contract Revenue Recognition Changes

  1. Vincent Papa, PhD, CPA, CFA

It is approximately 18 months to 2018. And the clock ticks away towards a new world where there could be potentially significant revenue recognition changes due to the revised International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) guidance, which will be effective from 2018. Pronounced changes in the amount and timing of revenue recognized could arise for companies whose business models depend on long-term customer contracts (e.g., engineering, aerospace, defense, infrastructure, and real estate development).

This paper highlights key areas within the revised guidance that could affect reporting outcomes for long-term contracts and need to be at the forefront of investors’ attention. These areas include criteria for recognizing revenue over time in a fashion similar to the current percentage-of-completion (POC) method; significant financing components; additional cost recognition and disclosures requirements; and transition considerations.

This paper extends the analysis of our April white paper (Watching the Top Line: Areas for Investor Scrutiny on Revenue Recognition Changes) that reviewed transition requirements, multiple deliverables within a contract, license revenue, gross versus net presentation of revenue, and customer credit risk. A further follow white paper, will review uncertain revenue, contract definition issues (e.g. modification) and presentation of revenue related lines on the financial statements.

Top-Line Watch: Investor Considerations in Run-up to 2018 View the full article (PDF)

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