Staff presented a paper dealing with alternative methods for recognising revenue. The paper represented a continuation of the discussion at the Board's March 2006 meeting. The two main methods examined were the Extinguishment-Based Method (EBM) and the Performance-Based Method (PBM). Several hybrid methods were presented, making a total of five methods:
- 1. EBM
- 2. EBM with an exception for long-term contracts
- 3. Customer Benefit Method
- 4. PBM
- 5. PBM with Application Accommodations (PBM-AA)
Board deliberations focussed on methods three and five. To illustrate the difference between the two methods, the Board discussed a performance obligation. The Customer Benefit Method is founded on a customer perspective, with revenue recognition based on whether the customer has accepted performance to date. The PBM with Application Accommodations takes an entity perspective, with revenue recognition based on the progress that the entity has made in fulfilling its performance obligations; it and uses customer validation merely as a means to determine performance progress.
The Board noted that customer acceptance would be important for revenue recognition if it is a contractual condition. However, customer acceptance would not necessarily create an unconditional asset for the seller.
As Board members seemed to think that view five was more in line with existing standards and with the direction that the IASB has taken in other standards, they voted 10/4 for the staff to develop this view further.
This paper will be discussed further at the joint IASB/FASB Meeting on 27 April 2006.