FASB’s Revenue Recognition for Contracts with Customers Nears Finalization

By Todd Bickford, Audit Director
April 2013

Over the past four years, FASB has worked with members of the construction industry and other industries to develop standards that address the revenue recognition needs of the many industries having contracts with customers.  In February 2013, FASB neared completion of this project with the release of decisions on several open items, as well as proposed transition dates that reaffirmed many of the 2011 exposure draft standards and changed several proposals that impact the engineering and construction industry.

The proposed standards will have a significant impact on contract revenue recognition for many industries.  The construction industry has been very active since the initial exposure draft and FASB has been open to clarifying or modifying proposed changes to accommodate the nuances of construction contracts.  However, the industry will still be impacted by the proposed standards, albeit the effect will be blunted for many construction contracts.  The following are a couple of the tentative actions made by the board on the proposed standard that will impact the construction industry and one proposed standard that will revert to existing standards.

Collectibility (Credit Risk)
FASB tentatively decided to present impairment losses (bad debts) prominently as an expense on the statement of comprehensive income. 

Constraint of Revenue (Variable Consideration)
FASB clarified the meaning of variable consideration stating that constraint of revenue should apply to a fixed-price contract in which there is uncertainty about whether the entity would be entitled to that consideration after satisfying the related performance obligation.  An entity will need to evaluate the impact on the cumulative amount of revenue when fixed-price contracts have one or more of these or similar elements:  Discounts, rebates, refunds, credits, incentives, performance bonuses, penalties, contingencies, and price concessions.  The entity should reassess its evaluation as subsequent facts and circumstances change.
FASB’s intent is that an entity should have a high level of confidence that it will realize variable consideration before recognizing the related revenue.

Onerous Performance Obligations
FASB has tentatively decided to remove the proposed guidance on onerous performance obligations (loss provisions) and retain the existing guidance on accounting for loss contracts.

The final standard is expected to be released in the next couple of months with the effective date for fiscal years ending after December 15, 2017 for public companies and fiscal years ending after December 15, 2018 for non-public companies.

Public companies are not allowed to early adopt.  Non-public companies will be allowed to early adopt for fiscal years ending after December 15, 2017.

You can find the FASB Exposure Draft and other discussion documents on the FASB website


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