FASB Balances Revenue Recognition Guidance With Principles


Editor's note: On April 14, FASB and the IASB said the priority projects on revenue recognition, leases and financial instruments, scheduled to be completed in June, would require a few more months of work. No specific deadline was set for the projects. Read "FASB, IASB Announce Delay on Priority Projects" for more information.


In the first of a five-part exclusive JofA interview, FASB Chairman Leslie Seidman shares her thinking on how the board is likely to deal with calls for more detailed implementation guidance for its new standard on revenue recognition.



JofA: How are FASB and the IASB balancing the calls, particularly from the U.S., for more implementation guidance on revenue recognition, for example, as opposed to a higher set of principles that other countries and jurisdictions generally would be comfortable with?


Seidman: You’re hitting on a very important issue there. If you take revenue recognition as a particular example, the overall thrust of the comment letters from the U.S. was that we had not included enough implementation guidance in the exposure draft. But if you look at the general sense of the comment letters coming in internationally, they thought we had provided too much.


It is a challenge we’re going to need to deal with. We have some unique environmental issues in the United States in the sense that we have a very robust audit function, review function and enforcement function. So to prepare financial statements in the United States, people would like to have some level of comfort that they have enough guidance to feel confident they have prepared a financial statement in accordance with the intent and spirit of the standards. 


At the end of the day, I’d like to make sure that the standards have enough implementation guidance so that people around the world feel comfortable that they understand how to implement the standard. In the event that we don’t believe that the standard we end up with has enough for the U.S., I think we can pursue alternative means by way of nonauthoritative examples, or other sorts of educational materials to supplement whatever the converged standard says. We would take care that these materials are consistent with the spirit of the standard, so that we don’t end up with a U.S. variety, if you will, of the standard.



JofA: Still using the revenue recognition example, is it possible that the comment letters are the beginning of a groundswell of requests for guidance? How would FASB respond to that?


Seidman: It’s important to note that we are in the middle of our re-deliberations of the proposal on revenue recognition. The ED contained some pretty significant changes relative to U.S. GAAP. I think that’s partly what is behind the request for a significant amount of implementation guidance. As we work through these issues, to the extent that we were to change the proposal to be more familiar to U.S. constituents, I think it would diminish the need for extensive implementation guidance. That’s an important thing to keep our eye on as we go forward with this project.


I think that we are not inclined to provide detailed implementation guidance on revenue recognition similar to what had existed in the past, where we had over 100 pieces of specific guidance on revenue recognition to address various types of transactions in a variety of industries.


I think that if we, through our outreach activities for the remainder of the process to finalize the standard, become aware that certain industries are struggling with how you would apply the standard in their industry, we can try and package that in ways that would communicate in a more general way to all industries, so that they understand how to implement the standard, but we don’t end up with a cookbook in response to all these various requests.



JofA: Is it still realistic at this point for the revenue recognition project to be finished by the end of the second quarter?


Seidman: We are working through the issues on revenue recognition very thoughtfully and expeditiously. So far, we appear to be on track to have concluded our substantive discussions of the issues raised in the exposure draft in that time frame. What we’re going to need to do, though, along the way is keep a vigilant eye on the extent of change that we end up with relative to what we exposed, also relative to current U.S. GAAP so that we know whether we need to conduct additional outreach to be comfortable that the standard we end up with is well understood and operational and viewed as an improvement by investors. I’m not at a point right now where I know the extent of outreach that we’re going to think is necessary. That could extend the time frame.


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Matthew G. Lamoreaux is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at mlamoreaux@aicpa.org or 919-402-4435.


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