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Revenue recognition – Update on outreach and comment letters

Date recorded:

The Boards' provided an overview of the outreach activities performed since the exposure draft was issued, the primary issues raised by constituents during these activities, and the preliminary plan as they work toward a final standard.

Since the exposure draft was issued in June, the Boards' have performed extensive outreach activities. These activities included field visits with individual companies, industry group meetings, discussion forums, targeted webcasts, round-table discussions, and review of comment letters received. Close to 1,000 comment letters were received on the exposure draft from a variety of industries. These letters are still being analyzed and will be summarised to the Boards' in their December meeting. However, these activities have resulted in the emergence of two fundamental issues with the proposed model and a number of other common concerns and themes.

The two fundamental issues highlighted relate to the application of the guidance on "control" and "separation." As currently described in the exposure draft, constituents believe the notion of control is not sufficiently clear to allow entities to determine when control has transferred to the customer (and therefore when revenue should be recognised). It was noted that this concept is significantly more difficult to implement for entities in service and construction industries.

The second fundamental issue relates to the identification of separate performance obligations (accounting units) within a contract. Many constituents believe the guidance in the exposure draft is impractical and may not result in useful information. Specifically, they commented that the exposure draft may result in identifying units of accounting that are too detailed and not consistent with how entities' activities are viewed by management or other users.

Other concerns or themes focused on the practicality and cost/benefits of certain provisions such as the probability-weighting of contingent consideration, adjustments to the transaction price for collectibility and time value of money, onerous performance obligation tests, disclosures, and retrospective application.

In December, the Boards' will review a final summary of the comment letters and will finalise the plan as they work to complete this project. Currently, they plan to redeliberate the two fundamental issues (control and separation) in the January's Board meeting and the other issues in February's Board meeting. The staff will continue its outreach to constituents and will coordinate with other joint project teams on common issues identified (e.g., probability-weight). Additional resources have been added to this project to analyze issues raise on the cost guidance in the exposure draft and to develop additional implementation guidance.

During the end of the discussion, a concern was raised that some constituents (specifically noted in the United States) were requesting that no changes be made to the current revenue recognition models. (This was not consistent with the strong support during the roundtable discussions internationally to continue toward one, comprehensive model.) The Boards' plan to continue their extensive outreach activities to ensure any changes to specific industries' current practice are specifically discussed by the Boards so well informed decisions are made (which will include education sessions for the Boards).

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