How the new revenue recognition standard impacts food and beverage companies

When the COVID-19 pandemic disrupted the U.S. economy, the Financial Accounting Standards Board (FASB) voted in May 2020 to extend the effective date of the revenue recognition standard by one year based on the recommendation of the American Institute of Certified Public Accountants’ (AICPA) Technical Issues Committee (TIC).

For private, nonpublic companies who haven’t issued their financial statements yet, the effective date will be for fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022.

In a comment letter to the FASB, TIC explained through feedback from certain clients of its members, it learned many private companies had to turn nearly all their attention to addressing survival of operations through months of decreased or nonexistent operations; and the remote work environments caused by the pandemic can make routine, day-to-day financial accounting tasks challenging.

Background

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606). This standard, along with subsequent amendments and clarifications issued by the FASB, fundamentally changed how companies across industries recognized, measured, presented, and disclosed information about revenue.

Under this guidance, a company has to recognize revenue when it transfers goods or services to a customer, rather than when the risk of loss from the sale of goods or services has passed to the customer.

Implications

While the impact of the standard on food and beverage companies who have adopted it generally hasn’t been as drastic as it was for others — such as the technology industry where long-term and multiple-element arrangement contracts are customary and require significant time to analyze — most companies still need to spend extra time reviewing their revenue channels for other affected areas to analyze impacts of the standard.

Prior to adoption of the standard, all food and beverage companies needed to revisit their financial statements and consider any necessary enhancements to meet the revenue recognition presentation and disclosure requirements. Now, companies who’ve already adopted the standard could use the next reporting period as an opportunity to reassess for any business changes and improve disclosures.

Following are the key areas food and beverage companies need to consider when implementing the revenue recognition standard.

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