Deloitte comment letter on revenue from contracts exposure draft
Deloitte's IFRS Global Office has submitted a letter of comment to the International Accounting Standards Board (IASB) on its Exposure Draft ED/2011/6 – Revenue from Contracts with Customers.
In the comment letter, we express our agreement with the decision by the IASB and the US Financial Accounting Standards Board to re-expose the revenue proposals. However, we continue to disagree with some of the proposals in the current ED. The following are excerpts from the letter:
The requirements in respect of onerous contracts and onerous performance obligations are confusing, inconsistent and unhelpful to users of the financial statements. In our view, the boards should not proceed with the proposals in the current ED. Instead, they should issue a converged revenue Standard that does not deal with provisions arising from onerous contracts or onerous performance obligations.
The guidance on variable consideration should be refined to avoid unintended consequences, as explained in our response to Question 3. Unless the guidance is refined, it is possible that an entity expecting to receive variable consideration may be required in the early stages of a contract to recognise profits that are not yet reasonably assured, and then to reverse them in the later stages, even where expected outcomes have not changed.
More consideration is required before extending the proposed derecognition and measurement requirements to transfers of other non-financial assets.
The guidance on when not to separate performance obligations (paragraph 29) will not work well in its current rule-based form. It should be redrafted to set out an underlying principle and associated indicators.
Also see our first issue in the Deloitte Point of View series, summarizing Deloitte's perspective on the revenue project.