The Financial Accounting Standards Board and the International Accounting Standards Board published
The revised proposals make good on the two boards’ previously announced intention to re-expose the latest version of their current proposals (see
The revised draft standard aims to improve the financial reporting requirements for U.S. GAAP and International Financial Reporting Standards for revenue and some of the related costs from contracts with customers. The latest proposals promise to provide a more robust framework for addressing revenue recognition issues; remove inconsistencies from existing requirements; improve comparability across companies, industries and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by streamlining the volume of accounting guidance.
As in the exposure draft last year, an entity would recognize revenue from contracts with customers when it transfers promised goods or services to the customer. The amount of revenue recognized would be the amount of consideration promised by the customer in exchange for the transferred goods or services.
However, the proposals have been revised since last year in response to feedback received from nearly 1,000 comment letters on the 2010 exposure draft and extensive outreach activities. The boards said they have further refined their original proposals by adding guidance on how to determine when a good or service is transferred over time; simplifying the proposals on warranties; simplifying how an entity would determine a transaction price (including collectibility, time value of money, and variable consideration); modifying the scope of the onerous test to apply to long-term services only; adding a practical expedient that permits an entity to recognise as an expense costs of obtaining a contract (if one year or less); and providing exemption from some disclosures for non-public entities that apply U.S. GAAP.
“This revised exposure draft on revenue recognition is based on the same underlying principles as the original draft, but we have simplified and clarified several aspects of the guidance in response to feedback we received,” said FASB chair Leslie Seidman in a statement. “Because this proposed standard would affect companies across a wide range of industries, we are taking this additional quality control step to ensure that the final standard is well understood by companies, auditors and investors before it is issued as a final standard. We plan to conduct additional outreach with interested parties during the comment period to help people understand the proposed guidance and to listen to any remaining concerns.”
If adopted in U.S. GAAP, the proposals would replace the guidance on revenue recognition in Topic 605 of the FASB Accounting Standards Codification. Under IFRS, the proposed standard would replace IAS 18 “Revenue,” IAS 11 “Construction Contracts” and related interpretations.
“Revenue is the top line and it is important to every business,” said IASB chairman Hans Hoogervorst in a statement. “Our proposals will give analysts and investors the confidence that revenue is being presented on a consistent basis, across industries and continents.”
The exposure draft is open for comment until March 13, 2012 and can be accessed via the ‘Comment on a Proposal’ section of
