In 2014, FASB and the International Accounting Standards Board issued a converged standard for revenue recognition to increase comparability across industries. The new standard marked a significant change and was meant to reduce complexity and standardize revenue recognition regardless of industry. The new standard is more principle based than rule based in its approach.

Many perceived the previous guidance, which varied under U.S. GAAP and IFRS, to be too complex and inconsistent among industries. Companies had to meet different requirements depending on the industry or type of transaction.

FASBs new guidance will address inconsistency and weakness in the existing revenue requirements, create a new framework to address revenue issues, improve comparability across entities and industries, provide more information and improved disclosure on financial statements, and simplify the preparation of financial statements by reducing the number of requirements. The new revenue recognition guidelines are premised on the principle of recognizing revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, according to a FASB Outlook newsletter. The new standard also uses more judgments and estimates.

1. What are some issues that auditors should be aware of with the revenue recognition standard?