Final IASB approval of rev rec standard imminent

BY KEN TYSIAC

Progress toward a converged financial reporting standard for revenue recognition continued Wednesday when the International Accounting Standards Board (IASB) indicated its intention to approve the standard.

The board’s staff now will prepare a ballot draft for a final vote. FASB also voted earlier this month to proceed to a ballot draft for the standard. Passage of the standard would represent one of the crowning achievements of the convergence process.

Revenue is considered one of the most important items in financial statements, and the standard is designed to create worldwide comparability—at least within a given industry—while eliminating voluminous, industry-specific guidance that exists in current U.S. GAAP.

The final standard is scheduled to be released in the first quarter of 2014. It would take effect for reporting periods beginning after Dec. 15, 2016 (FASB), or reporting periods beginning on or after Jan. 1, 2017 (IASB).

The new standard would require entities to follow a five-step process for revenue recognition:

  • Step 1: Identify the contract with a customer.
  • Step 2: Identify the separate performance obligations in the contract.
  • Step 3: Determine the transaction price.
  • Step 4: Allocate the transaction price to the separate performance obligations in the contract.
  • Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.


Some late changes approved by the boards last month introduce slight divergence to the proposal. The boards voted to add a collectibility threshold, requiring that entities would have to determine that collectibility is probable in order to recognize revenue.

Because “probable” is defined slightly differently in IFRS and U.S. GAAP, that change created a small amount of inconsistency between the FASB and IASB proposals. Nonetheless, the standard is considered to be substantially converged, and IASB members applauded heartily after deciding to move ahead with preballot drafting.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

SPONSORED REPORT

Building client loyalty with payroll services

In this report, CPA experts detail their tactics for performing successful payroll services, how to mitigate risk in the process, and the impact payroll can have as a value-added service.

PODCAST

Using drones to enhance audits

Hermann Sidhu, CPA, global assurance digital leader at EY, walks us through EY’s exciting new project to use drones to help audit large warehouses and outdoor inventories.