Introduction & Background
The Financial Accounting Standards Board issued Accounting Standards Codification (ASC) 606 - Revenue from Contracts with Customers in May 2014. As a result of the COVID-19 pandemic, the effective date was delayed for private companies that have not yet issued their financial statements or made their financial statements available for issuance to annual reporting periods beginning after Dec. 15, 2019, and interim reporting periods with annual reporting periods beginning after Dec. 15, 2020. The primary objective of the new standard is to enable users to better understand and consistently analyze revenue across industries, transactions, and geographies. One of the primary ways that this is achieved is through improved disclosure requirements.
Under previous U.S. GAAP (ASC 605), the revenue disclosure requirements were limited and dispersed among various industryspecific guidance. The new standard introduces a comprehensive disclosure package designed to better enable users to understand the nature, amount, timing, and uncertainty of revenue recognized. In accordance with the overall intention of the new revenue standard, the most noticeable difference between the disclosure requirements for ASC 605 and 606 is the transition away from industry-specific guidance in favor of broader, principles-based guidance. The shift to principles-based guidance necessitates a greater degree of judgment by those preparing the financial statements. The standard also offers non-public business entities the option to omit some of the disclosures that are required for public business entities in order to reduce the reporting burden on these companies. This guide provides interpretive guidance to assist private companies in determining the appropriate disclosures under the new standard.
This guide is designed to assist readers in navigating the disclosure requirements of the new standard, in addition to providing interpretive guidance, examples, and practical application considerations. The material is organized in the order that a preparer would be expected to apply the information; starting with the detailed guidance, transitioning to practical application considerations, and ending with illustrative examples. Those who are unfamiliar with the new disclosure requirements may consider starting at the beginning; however, all of the information in this guide has been written so that it may also be used as reference material. The information presented within this publication is not authoritative, and may not be applicable to all facts and circumstances. This publication does not constitute professional advice and no actions should be taken based on the information herein without consulting a qualified professional.
Disclosure Requirements (Section B)
The first section of this guide contains detailed information about the disclosure requirements themselves, as well as interpretive guidance that aims to aid the reader in determining the applicability of the requirements to their situation.
Go to Section B
Practical Application (Section C)
Section C provides considerations for private companies regarding the business system and data collection processes that may need to change in order to collect the data necessary in order to comply with the new disclosure requirements, as well as guidance related to the application of judgment that is required for the disclosures of this principles-based standard.
Go to Section C
Disclosure Examples (Section D)
The final section of this guide provides comprehensive examples of disclosures that can be used as a reference for private companies.
Go to Section D