Revenue recognition

Background

Revenue is a crucial number to users of financial statements in assessing an entity’s financial performance and position. However, revenue recognition requirements under IFRSs are different from those under US GAAP and both sets of requirements need improvement. US GAAP comprises broad revenue recognition concepts and numerous requirements for particular industries or transactions that can result in different accounting for economically similar transactions. Although IFRSs have fewer requirements on revenue recognition, the two main revenue recognition standards, IAS 18 Revenue and IAS 11 Construction Contracts, can be difficult to understand and apply. In addition, IAS 18 provides limited guidance on important topics such as revenue recognition for multiple-element arrangements.

Accordingly, the IASB and FASB initiated a joint project to clarify the principles for recognising revenue and to develop a common revenue standard for IFRSs and US GAAP that would:

  • remove inconsistencies and weaknesses in existing revenue requirements
  • provide a more robust framework for addressing revenue issues
  • improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets
  • provide more useful information to users of financial statements through improved disclosure requirements
  • simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

 

Current status of the project

The IASB released a revised exposure draft, ED/2011/6 Revenue from Contracts with Customers, on 14 November 2011, after redeliberations on the previous exposure draft issued in 2010.

 

Project milestones

DateDevelopmentComments
June 2002 Added to the IASB's agenda
18 December 2008 Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers published Comment deadline 19 June 2009
24 June 2010 Exposure Draft ED/2010/6 Revenue from Contracts with Customers published Comment deadline 22 October 2010
14 November 2011 Exposure Draft ED/2011/6 Revenue from Contracts with Customers published (re-exposure) Comment deadline 13 March 2012

 

Related Discussions

  • Report of the IASB Chairman

  • Jan 12, 2012

  • Hans Hoogervorst noted that he had provided a detailed written report with supporting appendices. He limited his remarks to highlighting some issues.

  • Revenue recognition

  • Oct 19, 2011

  • The IASB and FASB discussed the application of certain of the disclosure requirements proposed in their revenue recognition project to both interim and annual financial statements.

  • Administrative session

  • Sep 08, 2011

  • The IFRS Interpretations Committee deferred further work on two topics (contingent pricing of property, plant and equipment and the 'continuous transfer' concept under IFRIC 15) given the interrelationship of the topics to two projects currently being discussed by the IASB (the revenue and leasing projects).

  • Revenue recognition

  • Jul 28, 2011

  • The IASB discussed whether to provide the same transitional relief to first-time adopters as previously agreed to be provided to existing IFRS preparers.

  • Effective dates

  • Jul 21, 2011

  • The IASB and FASB considered (1) whether to re-expose the proposals in the leasing project, (2) a detailed assessment of feedback received on effective dates and transitional disclosures and (3) an effective date for the revenue recognition project.

  • Revenue recognition

  • Jun 15, 2011

  • The IASB and FASB considered whether re-exposure of the proposed revenue standard would be necessary.

  • Revenue recognition

  • Jun 14, 2011

  • As part of its continual deliberations surrounding the Exposure Draft 'Revenue from Contracts with Customers', the IASB and FASB deliberated on (1) the effect of the proposed model on telecoms (and other) companies and (2) transition requirements.

  • IASB-EFRAG meeting

  • Jun 14, 2011

  • Multiple Board members of the IASB, its staff and the incoming vice-chairman of the IASB met with members of the European Financial Reporting Advisory Group (EFRAG) to discuss (1) the state of the major projects (2) new standards on consolidation, joint arrangements and disclosures (3) the timeline for completion of major projects.

  • Revenue recognition

  • May 31, 2011

  • The IASB and FASB considered the impacts of the revenue project on how an entity should account for the costs of products manufactured for delivery under long-term production programs

  • Revenue recognition

  • May 18, 2011

  • The IASB and FASB deliberated on (1) amortisation and impairment of an asset recognised from the costs incurred to acquire or fulfil a contract with a customer and (2) onerous contracts.

  • Revenue recognition

  • May 17, 2011

  • The IASB and FASB deliberated on disclosure and presentation requirements, discussing (1) disaggregation of revenues (2) contract assets and liabilities (3) remaining performance obligations (4) assets from acquisition and fulfilment costs.

  • Revenue recognition – Education session

  • May 11, 2011

  • The IASB and FASB hosted an education session in which members of the telecommunications industry presented concerns they have with the Board's proposals in the revenue recognition exposure draft and subsequent decisions to date.

  • IFRIC 15 – Clarification of meaning of continuous transfer

  • May 05, 2011

  • The IFRS Interpretations Committee considered the meaning of 'continuous transfer' under IFRIC 15 'Agreements for the Construction of Real Estate'. The Committee decided to not add this issue to the agenda but instead proposed to defer any further discussion until the revenue recognition project is complete.

  • Revenue recognition

  • Apr 14, 2011

  • The IASB and FASB considered the accounting for put options under sale and repurchase agreements, considering if and when such arrangements should be accounted for as a lease.

  • Revenue recognition

  • Apr 13, 2011

  • The IASB and FASB considered (1) the allocation of the transaction price to separate performance obligations (2) whether the revenue standards should distinguish between different types of licences and rights to use intangible assets (3) accounting for fulfilment costs.

  • Revenue recognition - uncertain consideration

  • Apr 12, 2011

  • The IASB and FASB discussed how an entity should determine the transaction price and recognise revenue when the customer promises an amount of consideration that is uncertain.

  • Revenue recognition - collectibility and uncertain consideration

  • Mar 23, 2011

  • The IASB and FASB continued their discussion on collectibility and also discussed three topics on uncertain consideration: (1) existence of a right to consideration, (2) measurement, and (3) constraining revenue - some of these are cross-cutting issues with the leases project.

  • Revenue recognition

  • Mar 01, 2011

  • The IASB and FASB discussed (1) whether to exclude contracts entered into as a "loss leader" (2) what costs should be included in the onerous test and in measuring an onerous performance liability.

  • Revenue recognition

  • Feb 17, 2011

  • The IASB and FASB discussed (1) the identification of separate performance obligations (2) breakage on prepayments (i.e. how to recognise revenue for unused gift cards or other prepaid services) (3) onerous performance obligations.

  • Revenue recognition – Combining contracts and contract modifications

  • Feb 16, 2011

  • In a second session on revenue for the day, the IASB and FASB discussed (1) principles on when multiple contracts should be combined and accounted for as a single contract (2) when to account for a contract modification as a separate contract, or as part of the original contract.

  • Revenue recognition

  • Feb 16, 2011

  • The IASB and FASB: (1) continued their discussion on identification of performance obligations from the January 2011 Board meetings, considering a revised objective and criteria for identifying separate performance obligations (2) continued their discussion over revenue recognition for service arrangements.

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