JetBlue and the New Revenue Recognition Standard
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition (ASC Topic 606 and IFRS 15, respectively) aimed at ameliorating difficulties associated with determining when to recognize revenue and at what amount. Prior revenue recognition standards applied broad concepts together with a variety of requirements for specific industries or types of transactions, sometimes resulting in divergent accounting for economically similar transactions. In contrast, the new standard outlined a single comprehensive model to use in accounting for revenue from contracts with customers. Although the new standard simplified the guidelines down to one framework, it also generally required firms to use more judgment and estimation than prior guidance. In its second quarter of 2014 financial statement filed with the Securities and Exchange Commission (SEC) in August 2014, New York-based airliner JetBlue Airways Corporation (JetBlue) [NASDAQ: JBLU] acknowledged the new revenue recognition standard. While it had yet to determine the full impact of adoption, changes were imminent. This case examines how companies' accounting practices are affected by broad-based new accounting standards. It is designed to introduce the new revenue recognition standard, and help students walk through an assessment of how the standard might impact a company like JetBlue Airways.