Investment Company Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting investment companies.

New Revenue Recognition Standards and Impact on Asset Managers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This standard clarifies the principles for recognizing revenue and offers a common revenue standard between U.S. GAAP and IFRS.

This principles-based approach to revenue recognition is intended to avoid inconsistencies in accounting treatment across different geographies and industries and to provide more useful information to financial statement users through enhanced disclosure requirements.FASB Standard

After a deferral of the original effective date, the standard is now effective for public companies and certain Not-For-Profits and Employee Benefit Plans for annual and interim reporting periods beginning after December 15, 2017. All other entities are to apply the guidance to annual and interim reporting periods beginning after December 15, 2018.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised 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. To achieve that core principle, an entity should apply the following steps:

  • 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

In order to identify issues specific to the investment management industry, the AICPA developed The AICPA Asset Management Revenue Recognition Task Force, which is charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples for how to apply the new Revenue Recognition Standard.

This grid, also available in the link below, summarizes considerations for asset managers relative to certain contracts identified by the Task Force as being of consequence. Contract-specific considerations should be analyzed for proper treatment. 

View Grid