In 2019, the Accounting Standards Update (ASU) 2014-2019 Revenue from Contracts with Customers went into effect across all industries. Since its implementation, it has affected day-to-day accounting related to the execution of contracts with customers. The new revenue recognition standard eliminated the previous guidance under GAAP and replaced it with the following five-step framework:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
With the new standard now fully implemented, its effect on different industries is becoming more apparent. So what does this mean for government contractors?
For one thing, the new standards have necessitated a change to many key revenue recognition processes for government contractor business entities. The type and nature of a contractor’s work have ultimately determined the impact of the new standard.
For some types of contracts, there have been minimal changes. However, as compliance continues, government contractors need to understand the guidelines and take a look at some key areas noted in the AICPA Aerospace & Defense Recognition Task Force:
Based on the original implementation plan outlined by The AICPA, the following steps should be taken to ensure ongoing compliance.
The full impact of the new standard will become more apparent as implementation continues. The professionals at BSB specialize in accounting and professional services for government contracting and other industries. We understand the new standards and help our clients implement the changes required under current law. Please contact us with questions or concerns about revenue recognition or any other needs.