Accounting Standards Update 2014-09 Revenue from Contracts with Research Paper

Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606) - Research Paper Example the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) agreed upon modifying the existing standard of revenue recognition (Accounting Standards codification 605) in Generally Accepted Accounting Principles (GAAP) and publish Accounting standards update 2014-09 (AICPA, 2014). The paper aims at understanding the implications of the update in context of revenue recognition in a broad manner. Alongside, it will also highlight impact of the new development in terms of improvement in financial reporting. Revenue is a very crucial element of the financial statement as it helps investors and other interested parties of an organisation in assessing the financial performance as well as position of the company with respect to others in an industry. It was observed that significant differences existed between revenue recognition principle of US GAAP and that of International Financial Reporting Standards (IFRS). It was also ascertained that both the standards required certain improvements so as to improve the overall quality of financial reporting (Gallistel, et al., 2012). The previous revenue recognition guidelines in the US GAAP integrated broad concepts with various revenue requirements that were industry-specific; this process complicated the overall system of reporting. Contrastingly, IFRS revealed very limited information which made it difficult to account for complex transactions. The new revenue recognition guidance replaces transaction specific and industry specific revenue reco gnition measures with a principle based approach which is more specific in nature (Ernst & Young, 2014; PWC, 2014a). The boards, FASB and IASB, responded to the above mentioned challenges by developing a converged set of requirements that meet existing issues in US GAAP and IFRS. The guiding principle of the new standard aims at ensuring that companies recognise revenue for depicting transfer of goods and services to consumers in an amount which