Financial reporting

December 1, 2012

  Adjustments for the time value of money, which have generated some opposition from stakeholders, are likely to remain a part of the converged revenue recognition standard that is being jointly developed by FASB and the International Accounting Standards Board (IASB).

The boards tentatively affirmed a proposal in the 2011 exposure draft regarding the time value of money, according to an update posted on FASB’s site. The proposal states that if a contract with a customer has a significant financing component, the entity should adjust the amount of promised consideration for the effects of the time value of money.

Board decisions are tentative and do not become final until after a formal written ballot. The final revenue recognition standard is scheduled to be released in the first half of 2013.

Inclusion of the time value of money in the revenue recognition standard has met with some opposition from the AICPA and some corporations because of complexity.

In a comment letter, the AICPA Financial Reporting Executive Committee opposed including the time value of money in the standard because, it said, practical challenges and costs would outweigh the benefits to users.

“In evaluating time value of money, an entity would also need to consider how it manages its overall net cash inflows and outflows in an arrangement in order to accurately reflect the time value of money,” the letter said. “This adds even further complexity.”

Comment letters from Boeing, General Motors, and Chrysler also advocated eliminating or modifying the time value of money requirement because of concerns that it has the potential to be misleading and creates operational challenges to implement.


  The IASB will re-expose its proposals for insurance contracts accounting.

Although the project, which has been undertaken jointly with FASB, has been in progress since 2007, the IASB decided that re-exposure for public comment is appropriate because substantial changes—whose effects need to be understood—have been made since the original exposure draft was released for comment earlier this year.

What is being called a “targeted re-exposure” by the board seeks answers to a limited number of questions. The board is limiting the questions to avoid reopening issues that have been decided to its satisfaction.

Questions in the ED will relate to proposed requirements for:

  • Treatment of participating contracts.
  • Presentation of premiums in the statement of comprehensive income.
  • Treatment of the unearned profit in an insurance contract.
  • Presenting, in other comprehensive income, the effect of changes in the discount rate used to measure the insurance contract liability.
  • The approach to transition.


The ED will be made available on the IASB’s website at ifrs.org.

Although FASB and the IASB have worked jointly on the project, they have reached different conclusions about several elements of the model. FASB was scheduled to release an ED on insurance in the fourth quarter.

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