Implementing the new revenue recognition standard in Higher Education: Tuition and housing revenue impacts

This is the first in a series of articles in which we will explore the revenue recognition standard requirements and the impact on higher education institutions, including the types of contracts with customers that your institution may have, and highlight some of the decisions that you will need to make as you evaluate your contracts under the revenue recognition standard.

An overview of the standard

The Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), was issued by the Financial Accounting Standards Board (FASB). The standard’s effective date is for public entities’ annual reporting periods beginning after December 15, 2017. A public entity is, according to FASB, an entity that, “is any one of the following: (1) a public business entity, (2) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, (3) an employee benefit plan that files or furnishes financial statements to the SEC.” If your organization is a not-for-profit institution with conduit debt, then your institution is considered a public entity and the standard is effective for your fiscal year beginning July 1, 2018.  For non-public entities the standard is effective beginning July 1, 2019.

The core principle of the new standard under the Account Standards Codification (ASC) topic 606, paragraph 10-05-3, is that revenue recognition should “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.”

In addition, another proposed ASU, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, is being issued to improve and clarify existing guidance on revenue recognition of grants and contracts by not-for-profit organizations. This proposed ASU is expected to be effective at the same time as ASU No. 2014-09.

As institutions navigate implementation of these standards, many institutions struggle to answer the following questions as they progress:

• What are the potential issues when implementing?
• How do the new requirements affect the timing of balance sheet transactions? Could this change the amount of tuition and housing revenue recognized in each fiscal year for those academic periods that cross over the fiscal year-end?