FASB Votes to Move Forward with Final Standard on Revenue Recognition
A joint project of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), the new revenue recognition standard aims to “both improve and substantially converge guidance on how revenue is recognized in financial statements.” At the November 2013 FASB meeting, it was voted to move forward with preparation on the standard, which is expected to be issued during the first quarter of 2014. The project just passed the “technical discussion” phase, and now the FASB will begin preparation of the ballot draft of the standard.
The project began in January 2002, when the FASB began discussions of a potential major project on the recognition of revenues and liabilities in financial statements. The decision was made to move forward with the project in May of 2002 after a 60-day public comment period, which generated 32 comment letters on the proposal. The underlying goal is to develop a single revenue model for various industries.
The boards considered two approaches, the “fair value model,” and the “customer consideration model.” Concerns about the pattern of revenue recognition, as well as reasonably estimating fair value of prices that are “not observable,” caused the boards to move forward with the customer consideration model, which resulted in the Discussion Paper, Revenue Recognition in Contracts with Customers, in December 2008. After numerous responses to this paper, the FASB and IASB began focusing on key areas such as how an entity would determine how to divide a contract into separate performance obligations, how to determine the amount of consideration to allocate to those performance obligations, and how an entity would determine when a performance obligation is satisfied.
Most recently, on January 4, 2012, the Board published, for public comment, an Exposure Draft, Revenue from Contracts with Customers – Proposed Amendments to the FASB Accounting Standards Codification®. This draft was open for public comment until March 13, 2012.
The final standard is expected to take effect for public companies in 2017 and for private companies in 2018. The changes are likely to be wide-ranging. Watch future BNN newsletters for more details as the implementation date approaches.
For more information on the Revenue Recognition Project visit the FASB website and click the “Projects” link or call your BNN advisor at 1.800.244.7444.
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