Revenue Recognition from Contracts with Customers

Most people are aware by now that the generally accepted accounting principles (GAAP) model on revenue recognition is changing. ASU 2014-09, which covered Revenue from Contracts with Customers, was issued in 2014 and it represents—along with leases—one of the most significant GAAP changes in some time. The standard applies to all types of entities that have customer contracts and will be applicable to nonprofits who engage in what are called “exchange transactions.” The accounting for contributions is unchanged by the new standard. ASC 606 is the reference in the codification where the revenue standard is located.

For most organizations the new standard will take effect for periods beginning after December 15, 2018 or 2019 for calendar year entities. We will be reviewing some of the guidance coming out on revenue recognition affecting specifically the nonprofit sector.

As a response to the sweeping changes affecting revenue recognition, the American Institute of Certified Public Accountants (AICPA) created revenue recognition task forces in 16 different industries to address implementation and ongoing issues with the new standard, and to create a new audit and accounting guide for revenue recognition. The guide is posted online and is being updated as issues are developed. Chapter 8 of the guide is on Not-for-Profit Entities and includes accounting implementation issues identified and developed by the AICPA Not-for-Profit Entities Revenue Recognition Task Force, and approved by the AICPA revenue recognition Working Group and the AICPA Financial Reporting Executive Committee (FinREC). This is a non-authoritative source for accounting guidance for non-governmental entities. Remember, under current rules only the Accounting Standards Codification (ASC) from the Financial Accounting Standards Board (FASB) is authoritative.

The identified revenue recognition issues focused on by the task force include:

• Tuition and Housing Revenue
• Contributions—clarifying that contributions are not within the scope of the new standard
• Grants—this was referred to the FASB to work on and FASB has issued the exposure draft “Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made”
• Subscriptions and Membership Dues
• Bifurcation of Transactions Between Contribution and Exchange Components

All of these are currently included in the online revenue recognition guide, with the exception of subscriptions and membership dues. The AICPA task force will be posting their guidance on those in the future.

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