In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that replaces almost all pre-existing revenue recognition guidance in current U.S. generally accepted accounting principles (GAAP), including industry-specific guidance.
While the new guidance replaces most existing industry-specific revenue recognition guidance in U.S. GAAP, it does not replace the guidance applicable to insurance entities in Topic 944, “Financial Services—Insurance,” of the FASB’s Accounting Standards Codification. Accordingly, most risk-bearing insurance entities are scoped out of the new guidance. However, the new guidance does supersede the revenue recognition guidance previously applied by non-risk bearing entities (and risk-bearing entities for non-risk bearing activities) in the insurance sector (e.g., third-party administrators, agents, brokers). Application of the new guidance by these entities could significantly affect the timing and amount of revenue recognized, depending on their business models and previous accounting policies. In our white paper, Changes to revenue recognition impacting insurance entities, we discuss how the accounting for multiple-deliverable arrangements, performance bonuses, penalties and contingent payments and costs related to customer contracts is impacted by the new guidance.
While the effective dates for the new guidance are staggered, they are now upon us. With limited exceptions, the new guidance was effective as of January 1, 2018 for public entities with calendar year ends. For all nonpublic entities with calendar year ends, the new guidance is effective in the year ending December 31, 2019. Time is of the essence for these entities given that implementation of the new guidance could represent a significant undertaking in many cases. Our white paper can be a valuable tool in the implementation process to help understand the application of ASC 606 to entities in the life science industry.
For a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.