The American Hotel & Lodging Association’s Financial Management Committee has issued guidance on new revenue recognition standards and how it affects the hotel industry.
The Financial Accounting Standards Board revised its guidelines for recording revenue in its Accounting Standards Codification (“ASC”) 606. Implementation of ASC 606 is effective starting 1 January 2018 for public companies, and no later than 31 December 2019 for all other companies.
The objective of the new accounting guidance is to clarify how revenue should be recognized for goods and services. The American Hotel & Lodging Association’s 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) related to gross vs. net revenue accounting to incorporate the new revenue recognition standards. All of this information can be found at AHLA’s website.
- For more on how new accounting and financial reporting standards could affect the hotel industry, read this column by AHLA financial management committee members Cindy Braak and Raymond Martz.
The new revenue recognition standards may impact how a hotel recognizes revenue in any instance where a hotel utilizes a third-party service provider for 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 on 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 publishes the USALI, which is the global standard for the hotel industry for operating statement reporting and guidance.
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