The New Revenue Recognition Framework Is Here
It has taken quite some time, and many revisions, to get here, but the Financial Accounting Standards Board’s new revenue recognition rule is now in effect for public companies and quickly approaching for privately held, calendar-year companies with a deadline of Dec. 31, 2019.
This rule was crafted to help standardize how revenue is recognized to increase comparability across businesses and industries. In the past, companies considered a wide range of transaction and industry guidance to recognize revenue from contracts with customers. FASB’s update helps investors, business owners and stakeholders better evaluate the long-term performance and health of one organization compared to another, even across different industries.
While this GAAP update standardizes how companies recognize revenue, adoption can have a significant effect on banks’ financial reports and accounting. For example, JPMorgan Chase’s adoption of the new standard required gross presentation of certain costs previously offset against revenue. This substantially increased revenue and certain noninterest expenses for reporting purposes, although had no effect on net income. The adoption resulted in an approximate $900 million increase in both revenue and expenses for the retrospective adoption of the new standard.