ASC 606, new revenue recognition standard, may impact broker-dealers

The AICPA Financial Reporting Executive Committee (FinREC) recently issued working drafts that address accounting issues related to the implementation of the new revenue recognition standard – ASC 606, Revenue From Contracts With Customers (updated via Accounting Standards Update No. 2014-09) – in nine industries, including brokers and dealers in securities.

Effective dates

This new revenue standard becomes effective for public entities for reporting periods beginning Dec. 15, 2017 and Dec. 15, 2018 for nonpublic entities.

Impact on broker-dealers

The initial belief within the industry was that the new revenue recognition standard would not have a significant impact on broker-dealers. However, the AICPA Brokers and Dealers in Securities Revenue Recognition Task Force has recently released a listing of nine potential revenue recognition implementation issues as listed below:

1. Commission Income – Asset Purchases and Sales
2. Commission Income – Trade Date
3. Selling and Distribution Fee Revenue
4. Costs Associated with Underwriting
5. Costs Associated with Investment Banking Advisory Services
6. Underwriting and Related Fee Income
7. Advisory Fee Income
8. Soft Dollar Revenues
9. Revenue from Financial Instruments (out of scope)

To date, the AICPA has only issued commentary on item 9 above detailing the various types of revenues that are out of scope of the new standard.

Commentary on the remaining issues will be available once reviewed by FinREC. Broker-dealers should be aware of the potential for impacts on their accounting depending on the outcomes of the task force.

For more information on revenue recognition, or to learn how Baker Tilly specialists can help,