IASB, FASB Propose New Joint Standard For Revenue Recognition

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have published for public comment a draft standard to improve and align the financial reporting of revenue from contracts with customers and related costs.

 

If adopted, the proposal would create a single revenue recognition standard for International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP) that would be applied across various industries and capital markets. The publication of this joint proposal represents a significant step forward toward global convergence in one of the most important and pervasive areas in financial reporting. The proposed standard would replace IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. In US GAAP, it would supersede most of the guidance on revenue recognition in Topic 605 of the FASB Accounting Standards Codification.

 

The core principle of the draft standard is that an entity should recognise revenue from contracts with customers when it transfers goods or services to the customer in the amount of consideration the entity receives, or expects to receive, from the 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.

 

In developing the proposals, the boards considered more than 220 comment letters received on their discussion paper, Revenue Recognition in Contracts with Customers, in addition to feedback received from interested parties through an extensive outreach programme, including workshops with preparers. The boards will undertake further outreach activities during the exposure draft’s comment period to ensure that the views of all interested parties are taken into consideration when finalising the standard.

 

"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 recognised—and why," comments Sir David Tweedie, chairman of the IASB.

 

For his part, Robert Herz, chairman of the FASB, says 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.
 

Read more on

Suggested Articles

Some of you might have already been aware of the news that Questex—with the aim to focus on event business—will shut down permanently all media brands in Asia…

Some advice for transitioning into an advisory role

Global risks are intensifying but the collective will to tackle them appears to be lacking. Check out this report for areas of concern