Impact of the New Revenue Recognition Standard on the Asset Management Industry

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. Topic 606, Revenue from Contracts with Customers, presents the new revenue recognition guidance. FASB also issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, in August 2015. As a result of ASU 2015-14, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein for public entities. Nonpublic entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 31, 2018, and to interim reporting periods within annual reporting periods beginning after December 15, 2019. Entities may elect to adopt early, and apply the amendments for an annual reporting period beginning after December 15, 2016 (the original effective date of ASU 2014-09).

The new standard will replace all industry-specific guidance currently available in U.S. generally accepted accounting principles (“GAAP”) by applying five broad steps to determine when to recognize revenue. The guidance affects all entities that enter into contracts to provide goods or services to their customers, unless the contract type is specifically excluded from the guidance. The types of contracts that are excluded from Topic 606 include: lease contracts, insurance contracts, contractual rights or obligations for financial instruments, guarantees (other than service and product warranties), and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers.

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