Revenue recognition revisited
One-year delay and other clarifications proposed in convergence project.
A reexamination of new revenue recognition rules has led to tinkering with the standard that is considered the biggest achievement of the convergence efforts of FASB and the International Accounting Standards Board (IASB).
The most significant potential change came April 1, when FASB agreed to propose delaying the effective date of the standard by one year. The board voted to propose having the standard take effect for reporting periods beginning after Dec. 15, 2017, for public companies that use U.S. GAAP for their financial statements.
Private companies would have an additional year past the public company effective date to implement the standard. Early adoption would be allowed as of the original effective date for public companies (reporting periods beginning after Dec. 15, 2016). Public companies that adopt early would be required to do so on an annual and interim basis. Private companies that adopt early could do so on an annual basis, and subsequently for annual and interim periods.
FASB directed its staff to prepare a formal written ballot for a proposal seeking feedback in a 30-day comment period. The IASB also was expected to consider later in April a possible delay in its effective date.
Financial statement preparers who said they didn’t have enough time for transition raised the possibility of delaying the effective date shortly after the standard was released in May of last year.
FASB and the IASB also have voted to propose clarifying certain areas of the standard and implementation guidance that have caused the potential for diversity in practice.
The proposed clarifications hold the potential for divergence in the standard because the boards came to different conclusions on some of the clarifying changes and revisions they plan to propose. The IASB generally was less open to changes than FASB and agreed to propose more limited clarifications.
In addition to the change in the effective date, the boards plan to propose changes including:
Licenses of intellectual property: FASB and the IASB voted to propose revisions to the implementation guidance about determining the nature of the entity’s promise in granting a license of intellectual property.
Identifying performance obligations: FASB voted to propose amendments to address implementation issues related to identifying promised goods or services that would be subject to the separation guidance; application of the distinct guidance; and accounting for shipping and handling activities, as well as making some technical corrections.
Practical expedients upon transition—contract modifications and completed contracts: FASB and the IASB voted to propose a “use of hindsight” expedient.
Sales tax presentation—gross versus net: FASB agreed to add a project to its technical agenda to propose revisions to the standard that would permit a practical expedient for presentation of sales taxes. FASB would propose the practical expedient to allow an election for net reporting for all in-scope sales taxes with disclosure of the policy.
Revenue recognition—noncash consideration: FASB voted to propose clarifying the guidance for determining the measurement date for noncash consideration, explaining that noncash consideration is measured at contract inception.
In addition, FASB voted to propose applying the constraint on variable consideration only to transactions in which the fair value of noncash consideration might vary for reasons other than the form of the consideration.
Collectibility—accounting for cash received: FASB voted to improve the articulation of the guidance in ASC Paragraph 606-10-25-7 of the standard and improve the articulation of the guidance for the collectibility threshold in Step 1.
Ken Tysiac is a JofA editorial director. To comment on this article or to suggest an idea for another article, contact him at ktysiac@aicpa.org or 919-402-2112.
