FASB delays revenue recognition effective date by one year

By Ken Tysiac

Citing challenges for financial statement preparers, FASB voted Thursday to delay the effective date of the new revenue recognition standard by one year, with early adoption permitted as of the original effective date.

As a result of the delay, public business entities, certain not-for-profit entities, and certain employee benefit plans would apply the new revenue recognition standard in annual reporting periods beginning after Dec. 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after Dec. 15, 2016, including interim reporting periods within that reporting period.

All other entities would have an additional year for implementation, applying the guidance to annual reporting periods beginning after Dec. 15, 2018, and interim reporting periods within annual reporting periods beginning after Dec. 15, 2019. Application for all other entities would be permitted earlier only as of an annual reporting period beginning after Dec. 15, 2016, including interim reporting periods within that reporting period; or an annual reporting period beginning after Dec. 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which an entity first applies the new guidance.

The International Accounting Standards Board (IASB) also has proposed a one-year delay in its new revenue recognition standard, which is converged with FASB’s after the boards participated in a lengthy joint standard-setting process.

When implemented, the standard will provide more principles-based guidance for recognizing revenue than companies that report under U.S. GAAP are accustomed to. The new standard was designed to create comparability across industries and jurisdictions with the convergence of U.S. GAAP and IFRS.

FASB’s delay came about because financial statement preparers voiced concerns about not having enough time to implement the standard. The release of the standard was delayed several months before its issuance in May 2014. Since the standard’s issuance, FASB and the IASB have proposed several changes to it in response to preparers’ questions about the guidance.

Preparers were concerned about the delayed issuance, the timing of the proposed changes, a lack of available IT solutions, and difficulty implementing internal controls amid the uncertainty.

These concerns were serious enough that FASB members Daryl Buck and Hal Schroeder voted Thursday for a two-year delay in the standard, but they were outvoted by their colleagues. FASB members Tom Linsmeier and Larry Smith said they did not expect that the IASB would consider a two-year delay, and added that convergence in the U.S. GAAP and IFRS effective dates is a major point of advocacy for multinational companies.

Linsmeier and Smith also said a two-year delay might cause preparers to lose their momentum in implementation.

FASB member Marc Siegel voted not to permit early adoption but was outvoted by his peers. He is concerned that comparability will suffer when companies implement at different times.

“To have incomparable revenue is an extremely difficult thing for an investor to understand,” Siegel said.

Linsmeier said permitting early adoption would save costs for companies that are ready as of the initial effective date but said he does not expect many companies to elect the early adoption option.

“I don’t know that there are going to be a lot of companies that go early,” he said.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

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