The Financial Accounting Standards Board (FASB) recently revised how revenue from contracts with customers should be recorded. This was contained in FASB’s Accounting Standards Codification (ASC) 606. Implementation of ASC 606 is effective starting January 1, 2018 for public companies and no later than December 31, 2019 for all other companies.
The objectives of the new accounting guidance are to clarify how revenue should be recognized for goods and services. The American Hotel & Lodging Association’s (AHLA) Financial Management Committee has issued guidance on the new revenue recognition standards and how it affects the hotel industry. In addition, the Financial Management Committee has also provided a modification to the Uniform System of Accounts (USALI) relating to gross vs. net accounting for revenues to incorporate the new revenue recognition standards. All of this information can be found at AHLA’s website.
The new revenue recognition standards may impact how a hotel recognizes revenue in any instance where a hotel utilizes a third-party service provider as part of a transaction with a guest or customer. This would include OTA transactions, parking, and audiovisual contracts, to name a few examples. For some hotels, this could have a meaningful impact to the hotel’s income statement and profitability. For instance, revenue from an OTA such as Expedia may now need to be recorded differently than how the hotel previously recorded this revenue. This change could impact the amount of franchise and management fees to be paid, as well as taxes owed to municipalities. Therefore, this new revenue recognition standard could impact the hotel’s bottom line.
AHLA’s Financial Management Committee provides guidance to hotel operators and owners on issues such as the new revenue recognition standards. The committee also establishes operating statement reporting guidance to the hotel industry. The Financial Management Committee works in cooperation with the Hotel Association of New York City, which owns the copyright to the publication, the National Restaurant Association Solutions, LLC, which has agreed to publish and distribute the work, and with the sponsorship of the Hospitality Financial and Technology Professionals. USALI is the global standard for the hotel industry for operating statement reporting and guidance.