FASB Issues Revised Proposal for Revenue Recognition
The Financial Accounting Standards Boards (FASB) and the International Accounting Standards Board (IASB) have been working together on a joint project on revenue recognition. The boards issued an original exposure draft of the new proposed standards in June 2010 that was met with much resistance. In an article by the Journal of Accountancy, the AICPA’s Financial Reporting Executive Committee was quoted to say in their comment letter to the boards, “We agree with the theoretical merit of many of the concepts included in the proposed standard. We also believe; however, that certain principles…may be neither practical nor operational for preparers and auditors to apply without undue costs.” With this, in addition to over 1,000 comment letters received on the original exposure draft, the boards ultimately decided to modify the original proposal. A revised exposure draft was reissued on November 14, 2011 and is open for public comment until March 13, 2012.
The revised proposal contains the same core principle as the original proposal: that 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 boards did refine the original proposal by:
- Adding guidance on how to determine when a good or service is transferred over time
- Simplify the proposal on warranties
- Simplify how a transaction price is determined
- Modify the scope of the onerous test to apply to long-term services
- Add a practical method for recognizing costs in obtaining a contract (of one year or less) as an expense
- Provide exemptions from some disclosures for non-public companies who use US GAAP
For more information on the revised proposal on revenue recognition visit the FASB website.