AICPA committee seeks private company relief from some elements of revenue standard

An AICPA committee has asked FASB to provide relief for private companies and certain conduit debt obligors from some elements of the new revenue recognition standard.

In a letter to FASB dated Jan. 17, the AICPA Private Companies Practice Section Technical Issues Committee (TIC) wrote that certain recognition and measurement decisions were made during the standard’s development before the Private Company Council (PCC) was created.

The PCC advocates for private companies during FASB’s development of standards and initiates the process of private company GAAP alternatives when necessary. TIC wrote that the magnitude and significance of the new revenue recognition standard warrants consideration of recognition and measurement differences for private companies, as well as the earlier effective date and disclosure differences for certain conduit debt obligors.

TIC requested that FASB:

• Consider providing implementation guidance and clarity on the issue of the new definition of a contract, which requires organizations to move from considering obligations that are “realizable” to obligations that are “legally enforceable” when recognizing revenue. “There already is diversity in practice on what this means and how to satisfy this requirement,” TIC wrote.
• Permit private companies to continue to apply, by accounting policy election, the incremental cost method for customer options for additional goods and services that are a material right. Alternatively, TIC recommended that FASB consider allowing private companies to use an exception to disregard performance obligations that are not material in the context of the contract for customer options for additional goods and services that are material rights.
• Create a practical expedient for private companies to allow short-cycle manufacturing companies to disregard an enforceable right to payment for performance to date in determining whether they must recognize revenue over the life of a contract.
• Consider a practical expedient to allow private companies to recognize revenue on out-of-pocket costs based on the amount to be reimbursed when the costs are incurred.
• Reconsider the effective date of the revenue recognition standard for not-for-profit conduit debt obligors, and examine the standard’s disclosure requirements for all conduit debt obligors.

“We do not believe that certain individual requirements … in determination of the amount and timing of revenue to be recognized provide relevant information to users of private company financial statements at a reasonable cost,” TIC wrote.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.