IASB and FASB Publish Revised Proposal for Revenue Recognition
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have 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:
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:
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.
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.”
The exposure draft is open for comment until 13 March 2012.