The Financial Accounting Standards Board's ASU 2014-09 (Topic 606) represents a significant shift in how nonprofits and associations record revenue from contracts with customers. This update streamlines revenue recognition across all business entities, creating more transparent and consistent financial reporting.
Understanding the Impact
The new standards provide organizations with clearer guidelines for telling their financial story. Leaders can now better identify contract obligations, assign transaction prices, and determine estimated selling prices through structured approaches. This brings unprecedented clarity to membership contract pricing and benefits valuation.
Key Considerations for Implementation
Organizations must evaluate several critical areas when implementing these new standards:
Membership Structure Review
The new guidelines require careful examination of membership renewal processes and dues cycles. Organizations must clearly define and standardize benefits across different member types.
Benefits Valuation
Each membership benefit must now carry a specific monetary value. This includes traditionally difficult-to-price elements such as advocacy services, publication access, and advisory council participation.
Performance Obligation Timing
Organizations must carefully consider the duration and delivery timing of all member benefits, ensuring revenue recognition aligns with service delivery.
Five Steps to Compliance
1. Contract Identification
Review all membership agreements, focusing on:
Agreement terms and duration
Payment requirements and structures
Member obligations and rights
2. Performance Obligation Definition
Clearly identify distinct benefits members receive, including:
Advocacy services
Registration fee discounts
Publication subscriptions
Advisory board access
3. Transaction Price Determination
Establish clear pricing structures that consider:
Expected revenue per service
Service delivery timeframes
Applicable discounts or incentives
4. Price Allocation
Assign specific values to each benefit as if sold separately, creating transparent pricing structures for all services.
5. Revenue Recognition Timing
Implement systems to recognize revenue when:
Services are delivered to members
Benefits are accessed
Performance obligations are fulfilled
Long-Term Benefits
While implementation requires significant effort, these new standards offer important advantages:
Improved financial transparency
Consistent revenue recognition practices
Better membership value communication
Enhanced decision-making capability
Moving Forward
The transition to ASU 2014-09 provides organizations an opportunity to reassess their membership structures and benefit offerings. While implementation may seem daunting, professional guidance can help ensure a smooth transition while maximizing the benefits of these new standards.
Ready to align your organization with the new revenue recognition standards? Contact us to discuss your implementation strategy.