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AASB expresses concern on revenue recognition

Nov 21, 2012

The Australian Accounting Standards Board (AASB) has written a letter to the International Accounting Standards Board (IASB) expressing concerns about the direction of some of the IASB’s recent discussions on the revenue recognition project, including the possible re-introduction of a 'collectibility threshold' for revenue.

The IASB discussed the possibility of a 'collectibility threshold' at its September 2012 meeting in the context of possible refinements to the revenue model to clarify the proposals on the presentation of the impairment loss line item.

In the unsolicited letter, the AASB notes that it "considers that the re-introduction of a collectibility threshold for revenue would be inconsistent with the core principle of the proposed model that an entity should recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services".

The letter goes on to note that a collectibility threshold introducing credit risk into the measurement of revenue is a valuation, rather than transaction, driven approach.  It also outlines that the credit risk of the customer is not related to the goods and services provided and netting bad debts against revenue may obscure useful information.

The letter also outlines that the AASB is also concerned about the introduction of 'rules-based' requirements relating to proxies for measuring an entity’s performance.  In particular, the letter provides feedback on the IASB's consideration of the suitability of ‘units of delivery’ or ‘units produced’ as output methods to measure progress that was discussed at the IASB's October meeting.

The aim of the AASB is to bring the issues raised in the letter to the attention of the IASB "before the IASB finalises this important project".  The IASB and FASB are discussing revenue recognition at the IASB meeting being held this week.

The issue of the letter follows on from discussions about various IASB projects at the AASB's meeting on 31 October - 1 November 2012.  At the meeting, the AASB also noted concerns about the leases project (which will be included in its response to the forthcoming exposure draft), and expressed concern about the IASB's recent investment entities amendments, which we previously reported on.

Click for a copy of the AASB's letter (link to AASB website).

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