Tentative Board Decisions
Tentative Board decisions are provided for those interested in following
the Board's deliberations. All of the reported decisions are tentative and may
be changed at future Board meetings.
February 10, 2016 Board
Meeting
Revenue
recognition—narrow-scope improvements and practical expedients. The Board
redeliberated its September 2015 proposed Accounting Standards Update,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients. The Board affirmed most of the amendments in the
proposed Update.
Collectibility
The Board affirmed its
proposals to:
- Clarify the objective of the collectibility criterion in paragraph
606-10-25-1. The objective of this assessment is to determine whether the
contract is valid and represents a genuine transaction on the basis of whether
a customer has the ability and intention to pay the promised consideration in
exchange for the goods or services that will be transferred to the
customer.
- Add a new criterion to paragraph 606-10-25-7 to clarify when revenue would
be recognized for a contract that fails to meet the criteria in paragraph
606-10-25-1. That criterion will allow an entity to recognize revenue in the
amount of consideration received when the entity has transferred control of
the goods or services, the entity has stopped transferring additional goods or
services and has no obligation to transfer additional goods or services, and
the consideration received from the customer is nonrefundable.
In
addition, the Board decided to retain the collectibility threshold in paragraph
606-10-25-1(e). The threshold is probable, which is defined in Topic 606 as
"likely to occur."
Presentation of Sales Taxes
The Board
affirmed its proposal to provide a policy election that permits an entity, as an
accounting policy election, to exclude amounts collected from customers for all
sales (and other similar) taxes from the transaction price.
Noncash
Consideration
The Board affirmed its proposals to:
- Specify that the measurement date for noncash consideration is contract
inception.
- Clarify that the variable consideration guidance applies only to
variability resulting from reasons other than the form of the
consideration.
In addition, the Board decided not to specify the
definition of fair value related to noncash consideration.
Contract
Modifications and Completed Contracts at Transition
The Board
affirmed its proposals to:
- Provide a practical expedient that permits an entity to determine and
allocate the transaction price on the basis of all satisfied and unsatisfied
performance obligations in a modified contract as of the beginning of the
earliest period presented in accordance with the guidance in Topic 606. Thus,
an entity would not be required to separately evaluate the effects of each
contract modification. An entity that chooses to apply the practical expedient
would apply the expedient consistently to similar types of contracts.
- Clarify that a completed contract for purposes of transition is a contract
for which all (or substantially all) of the revenue was recognized under
legacy generally accepted accounting principles before the date of initial
application. Accounting for elements of a contract that do not affect revenue
under legacy GAAP would be irrelevant to the assessment of whether a contract
is completed.
- Permit an entity to apply the modified retrospective transition approach
either to all contracts at the date of initial application or only to
contracts that are not completed contracts at the date of initial
application.
Disclosure of Remaining Performance
Obligations
The Board did not reach a decision on whether to add a
practical expedient to the disclosure requirement for remaining performance
obligations in paragraphs 606-10-50-13 through 50-14. The Board instructed the
staff to perform additional research about the effect of introducing an
additional disclosure practical expedient for variable consideration that is not
included in the transaction price for measurement and recognition of
revenue.
Next Steps
The Board directed the staff to draft
a final Accounting Standards Update for vote by written ballot.
The
Board will discuss the practical expedient to the disclosure requirement for
remaining performance obligations at a future Board
meeting.