The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued for public comment a revised draft standard to improve and converge the financial reporting requirements of International Financial Reporting Standards (IFRSs) and US General Accepted Accounting Principles (GAAP) for revenue (and some related costs) from contracts with customers.

The boards decided to re-expose the proposals because of the importance of the financial reporting of revenue to all entities and the boards’ desire to avoid unintended consequences arising from the final standard.

The proposed standard would improve IFRSs and US GAAP by providing a more robust framework for addressing revenue recognition issues. It would also remove inconsistencies from existing requirements.

The proposal also calls for the improvement of comparability across companies, industries and capital markets. The standard also seeks to provide more useful information to users of financial statements through improved disclosure requirements.

Simplyfing Preparation of Financial Statements

The core principle of this revised proposed standard is the same as that of the 2010 exposure draft: that an entity would recognise revenue from contracts with customers when it transfers promised goods or services to the customer.

The amount of revenue recognised would be the amount of consideration promised by the customer in exchange for the transferred goods or services. However, in response to feedback received from nearly 1000 comment letters on the 2010 exposure draft and extensive outreach activities, the boards further refined their original proposals.

In particular they added guidance on how to determine when a good or service is transferred over time. They also simplified the proposals on warranties.

The boards also simplified how an entity would determine a transaction price (including collectibility, time value of money, and variable consideration). They've also modified the scope of the onerous test to apply to long-term services only.