New Joint Standard for Revenue Recognition Proposed
The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) have proposed a standard to improve and align the financial reporting of revenue from contracts with customers and related costs, representing a significant step forward toward global convergence in one of the most important and pervasive areas of financial reporting.
“The proposal by the two boards is the result of our intensified joint efforts. It is an important step towards a single global principle-based standard that would make it absolutely clear when revenue is recognized—and why,” said IASB Chairman Sir David Tweedie.
If adopted, the standard would create a single revenue recognition standard for International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP) to be applied across various industries and capital markets. The core principle behind this proposal is that an entity should recognize revenue when it transfers goods or services to a customer in the amount of consideration the entity receives, or expects to receive, from that customer.
The proposed standard would improve both IFRSs and US GAAP by:
- Removing inconsistencies in existing requirements;
- Providing a more robust framework for addressing revenue recognition issues;
- Improving comparability across companies, industries and capital markets;
- Requiring enhanced disclosure; and
- Clarifying the accounting for contract costs.
“The proposed new standard not only seeks to reduce complexity by streamlining the way revenue recognition principles are applied across various industries and transactions, but it also aims at eliminating inconsistencies in existing revenue recognition standards and practices,” said FASB Chairman Robert Herz.
In developing the proposal, the boards considered more than 220 comment letters received on their discussion paper, Preliminary Views Revenue Recognition in Contracts with Customers, in addition to comments received through an extensive outreach program. Further outreach will be conducted during the draft’s public comment period to ensure all thoughts are considered before finalization.
The draft, Revenue from Contracts with Customers, was published June 24 and is open for public comment until October 22, 2010. It can be accessed through the IASB (www.iasb.org) and FASB (www.fasb.org) websites under the ‘comment on a proposal’ sections. A live webcast introducing the proposal is planned for early July.
Also In This Month's Issue:
Healthcare Reform Legislation Increases Tax Reporting Burdens with New 1099 Mandate
Big 4 Firms Propose Early Raises to Retain Employees