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FASB Releases Revenue Recognition Exposure Draft; Comments Due March 13, 2012

Earlier this week, the Financial Accounting Standards Board released for public comment its revised Exposure Draft on Revenue Recognition: Revenue Recognition (Topic 605): Revenue from Contracts with Customers. The 120-day comment period ends March 13, 2012. 

As stated in FASB’s press release: 

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.


Additional Information

Additional information about the revised Exposure Draft can be obtained by listening to FASB’s podcast featuring FASB board member Russ Goldenm moderated by FASB project manager Phil Hood.

FEI has also posted other summaries available from: KPMG, PwC and Deloitte

Posted: 11/17/2011 1:00:54 PM by Edith Orenstein | with 0 comments
Filed under: Exposure Draft,rev rec,revenue recognition,FASB,Golden,Hood,recognition,revenue,ED


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Edith Orenstein