today about the new Revenue Standard that will become US GAAP and worldwide IFRS guidance

for revenue recognition. The new standard has been jointly issued by the Financial Accounting

Standards Board (FASB) for the US and the International Accounting Standards Board (IASB)

for worldwide companies that have revenue.

The question often comes up whether this new standard only applies if the US adopts IFRS,

and the answer to that is a clear "no." IFRS is promulgated by the International Accounting

Standards Board which is one of the two bodies - along with the FASB - that is issuing this

joint standard.

This new standard is issued jointly by FASB, which does US GAAP, and the IASB, which does

IFRS GAAP. So, when it becomes effective in 2017, it's effective both for US companies

that follow US GAAP and companies that follow IFRS. It's not a question of if the US adopts

IFRS, it's a question of when the new standard becomes effective. And, that's 2017 for public

companies and 2018 for private companies.

What are some of the changes that the new standard has? Well, under current US GAAP,

a lot of the revenue recognition rules are very specific rule-based guidance. Under the

new standard, the approach to revenue recognition is going to be more based on principles. And

that principle includes the concept of expectation and estimates about what's going to happen,

whereas - under current US GAAP - we only do the fixed and determinable amounts of revenue

recognition.

But, in 2017, when companies issue their financial statements, they may need to present 2015

and 2016 also under the new standard. That's the retrospective adoption method of the new

revenue standard.

There's an alternative adoption method called the Simplified Transition Method." but it

itself is not that simplified because it would require companies to re-state their financial

statements at the beginning of the year of adoption and then to dual-track revenue throughout

that first year of presentation under the new standard.

So, there will be a whole host of issues for companies. There will be change in their revenue.

In general, you'll be recognizing more revenue sooner, but there will be more complexities

in each one of your revenue recognition transactions, because there will be a lot of subjective

elements and a lot of estimates associated with those transactions.

One example would be software companies are no longer going to be required to have VSOE

for their undelivered elements. So they may be recognizing all of their license revenue

upfront, where currently they're recognizing revenue ratably over time.

Other changes would include any time there's a potential penalty or a question about the

collectibility of a transaction from the customer, you'll be making estimates on those amounts,

where currently you might be recognizing zero initially and waiting until the transaction

is completed or fully collected before you recognize revenue.

These are just some of changes that are coming with the new standard. It's going to be a

lot of work for companies to transition and comply with the new standards, and - while

2017 is some time away from now - it's not too soon to get started.

We've had several webcasts here at Tensoft that you can access on our website to go into

this subject in more detail. And, there's a lot of information available around the

web and from the FASB and various accounting firms. So I recommend that you take some time,

get informed, take a look at the webcasts that we've done here at Tensoft, and learn

all about the new revenue recognition standard.