NEWS RELEASE 11/14/11
IASB and FASB Publish Revised Proposal for Revenue
Recognition
Norwalk, CT, November 14, 2011—The
International Accounting Standards Board (IASB) and the Financial Accounting
Standards Board (FASB) today issued for public comment a revised draft standard
to improve and converge the financial reporting requirements of International
Financial Reporting Standards (IFRSs) and US General Accepted Accounting
Principles (GAAP) for revenue (and some related costs) from contracts with
customers.
The boards decided to re-expose the proposals because of the
importance of the financial reporting of revenue to all entities and the boards´
desire to avoid unintended consequences arising from the final
standard.
The proposed standard would improve IFRSs and US GAAP
by:
- providing a more robust framework for addressing revenue recognition
issues;
- removing inconsistencies from existing requirements;
- improving comparability across companies, industries and capital
markets;
- providing more useful information to users of financial statements through
improved disclosure requirements; and
- simplifying the preparation of financial statements by streamlining the
volume of accounting guidance.
The core principle of this revised
proposed standard is the same as that of the 2010 exposure draft: that an entity
would recognise revenue from contracts with customers when it transfers promised
goods or services to the customer. The amount of revenue recognised would be the
amount of consideration promised by the customer in exchange for the transferred
goods or services. However, in response to feedback received from nearly 1000
comment letters on the 2010 exposure draft and extensive outreach activities,
the boards further refined their original proposals.
In particular
they:
- added guidance on how to determine when a good or service is transferred
over time;
- simplified the proposals on warranties;
- simplified how an entity would determine a transaction price (including
collectibility, time value of money, and variable consideration);
- modified the scope of the onerous test to apply to long-term services
only;
- added a practical expedient that permits an entity to recognise as an
expense costs of obtaining a contract (if one year or less); and
- provided exemption from some disclosures for non-public entities that
apply US GAAP.
If adopted, the proposed standard would replace IAS 18
Revenue, IAS 11 Construction Contracts and related
Interpretations. In US GAAP, it would replace the guidance on revenue
recognition in Topic 605 of the FASB Accounting Standards Codification®.
Commenting on the exposure draft, Hans Hoogervorst, chairman of the
IASB, said:
Revenue is the top line and it is important to
every business. Our proposals will give analysts and investors the confidence
that revenue is being presented on a consistent basis, across industries and
continents.
Leslie F. Seidman, chairman of the FASB, said:
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. 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.
The exposure draft is open for comment until 13 March 2012 and can be
accessed via the ‘Comment on a Proposal´ section of www.iasb.org or on
www.fasb.org. Further information including a podcast, an IASB ‘Snapshot´ and a
‘FASB In Focus´, which are high level summaries of the proposals, are available
on the IASB and FASB websites.