Accounting Standards Update No. 2014-09

Definition

Accounting Standards Update No. 2014-09 (ASU 2014-09) is an update to revenue recognition guidance under U.S. GAAP issued by the Financial Accounting Standards Board (FASB). It establishes a comprehensive framework for recognizing revenue from contracts with customers.

5 Must Know Facts For Your Next Test

1. ASU 2014-09 introduces a five-step model for revenue recognition: identify the contract, identify performance obligations, determine the transaction price, allocate the transaction price, and recognize revenue when (or as) performance obligations are satisfied.
2. The update aims to improve comparability of revenue recognition practices across industries and capital markets.
3. Entities must disclose sufficient information to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
4. The standard applies to all entities entering into contracts with customers except for certain specific transactions such as lease contracts, insurance contracts, financial instruments, and guarantees.
5. ASU 2014-09 was effective for public entities for annual reporting periods beginning after December 15, 2017, and one year later for non-public entities.

Review Questions

• What are the five steps in the model established by ASU 2014-09 for recognizing revenue?
• Why was ASU 2014-09 introduced by FASB?
• Which types of transactions are excluded from the scope of ASU 2014-09?

Related terms

GAAP:

Generally Accepted Accounting Principles are a set of rules encompassing details, complexities, and legalities of business and corporate accounting.

Revenue Recognition Principle:

This principle states that revenue should be recognized when it is earned and realizable.

Performance Obligation:

A promise in a contract with a customer to transfer distinct goods or services.