FASB and the International Accounting Standards Board (IASB) voted
Wednesday to propose additional changes to the converged revenue
recognition standard to address implementation concerns of financial
statement preparers.
Both boards voted to propose a
practical expedient to the transition guidance to allay preparers’
concerns about evaluating contract modifications.
The
proposed changes that came to a vote Wednesday add to previous
proposed clarifications that were voted on in February. The
possible clarifications agreed upon previously would relate to the
standard’s guidance for licenses of intellectual property and
identifying performance obligations.
The boards’ staffs
will draft proposals seeking comment on the potential revisions.
There was no detailed discussion Wednesday of a possible delay
in the standard’s effective date. FASB plans to discuss that issue in
April.
The standard is scheduled to take effect for
reporting periods beginning after Dec. 15, 2016, for U.S. public
companies, or reporting periods beginning on or after Jan. 1, 2017,
for companies that use IFRS.
FASB is considering changing
the effective date because some preparers have said they need more
time to change their systems and processes to implement the standard.
The IASB has said there has not been a clamoring for a change from
preparers who use IFRS.
As was the case during the
February meeting, FASB agreed Wednesday to propose more clarifications
than the IASB:
- Practical expedients upon transition
– contract modifications and completed contracts: Preparers are
concerned that the frequency and extent of contract modifications may
make an evaluation of each of those modifications during transition
complex and costly. In some cases, evaluation of modifications may not
be possible because data no longer are available.
FASB
and the IASB both agreed to propose a “use of hindsight” expedient. It
would permit an entity to account for a modified contract by
determining the transaction price at the contract modification
adjustment date and performing a single stand-alone selling price
allocation (with the benefit of hindsight) that would include all
satisfied and unsatisfied performance obligations in the concept from
inception.
The IASB also voted to propose a practical
expedient to permit an entity electing the full retrospective approach
to apply the new revenue standard retrospectively only to contracts
that are not completed as of the beginning of the earliest period
presented. FASB voted not to propose this 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 will propose the practical expedient to allow an
election for net reporting for all in-scope sales taxes with
disclosure of the policy. The IASB voted not to propose this
revision.
- 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.
The IASB voted not to propose clarifying this guidance.
- Collectibility – accounting for cash received: FASB voted to
propose revisions to the collectibility guidance.
Preparers have voiced concerns about applying the guidance in
situations when they sign a contract to provide goods or services with
a customer with low credit quality, or a customer whose credit quality
deteriorates after the contract is signed.
FASB voted to
improve the articulation of the guidance in ASC Paragraph
606-10-25-7[15] of the standard, and improve the articulation of
the guidance for the collectibility threshold in Step 1 of the
standard.
The IASB will make decisions at a future
meeting about whether and how to clarify the collectibility
guidance.
The staffs also updated the boards on their
research regarding gross versus net revenue reporting. The boards did
not make any decisions on this topic because the staffs plan to
perform additional outreach and research and will discuss the topic at
a later meeting.
—
Ken Tysiac is a JofA
editorial director.
