Revenue recognition (IASB-FASB)

Date recorded:

The staff have previously identified several topics that required Board discussion — these revolved around collectability, licences, and constraint — minimum requirements. For the purpose of the September 2013 meeting, the staff have considered the decisions made in the past by the Board around these topics and the feedback received, and have presented the Board with the staff’s initial thinking on how to proceed forward with these issues. The Board has not been asked to make any decisions in the September 2013 meeting, and instead have been asked for direction as to what topics are to be brought to the October 2013 meeting.

The following issues were raised for discussion:

The following minutes have been documented in the order of their discussion.


The staff have presented to the Board several alternative paths forward. These are:

  • Alternative A: Drafting improvements
  • Alternative B: Delete the criteria in paragraph IG33.2 for differentiating licenses.
  • Alternative C: Licences represent a right of use that transfers at a point in time (that is, 2011 ED approach)
  • Alternative D: Licences represent access to an entity's intellectual property (that is, a performance obligation that is satisfied over time)
  • Alternative E: Introduce additional criteria or indicators for determining whether a licence provides a right or access.

The staff noted that one of the key issues with licences was the interaction with the minimum constraint requirements and whether or not there should be two distinct licences (sale of right or access) and further emphasised that the drafting on licences was part of the Illustrated Guidance, that is, a demonstration of the implementation of the revenue model. They noted that if the Board preferred having distinct types of licences, then options A, B or E would be their options. If not, then C or D.

There was general support on the Board for the concept that there should be distinct licences.

One Board member noted that the issue was not the licence distinction, but rather that respondents did not like the outcome related to the constraint, to which several other Board members agreed. For this reason, they did not support B, C or D. Of options A and E remaining, they preferred A.

Several Board members supported a variation of E being implemented in A and there was general support for the need for drafting improvements.

One Board member suggested removing IG33.2 completely, noting that in the outreach programs, respondents were confused by the language in IG33.2 and did not know what ‘activity’ constituted. Several members disagreed with this, as they predicted that then preparers would then be asking for guidance indicators. The Board member noted that they support E, however they did not believe that the IASB and the FASB could agree on this, and therefore supported A. Several other Board members agreed with this last statement and noted that if going ahead with E, this may be a point of divergence with the FASB.

One Board member suggested keeping IG33.2 but including an additional determination that if you are in a ‘partnership’ with someone to sell your IP (sales based royalties), then you are deemed to have sold access to IP, not a right. This was not supported by the rest of the Board as they noted that one would have to define ‘partnership’, and that this was going towards rule based standards again.

Several Board members indicated that they would support the reintroduction of paragraph 85 of the 2011 ED, that was previously removed in Board deliberations.

The Board agreed that the staff would focus on draft improvements under Option A, and to present a discussion on constraints and whether this should be dealt with under constraints or licences.


The staff have presented to the Board several alternative paths forward. These are:

 Issue 1 — Overall clarity of the objective

  • Alternative 1A: Retain external review draft with some drafting improvements
  • Alternative 1B: Include an explanation of the level of confidence for the constraint as well as drafting improvements

Issue 2 — Requirement to include a minimum amount

  • Alternative 2A: Retain external review draft, that is, a minimum amount would always be included if the entity did not expect that minimum to reverse
  • Alternative 2B: Reinstate specific guidance for a usage-based royalty, that is, royalties on licences of intellectual property would only be recognised when the subsequent sale occurs.
  • Alternative 2C: Predictive value approach, that is, if the entity expects that its estimate is a good predictor of the amount of revenue it would be entitled to, it includes that estimate, otherwise it includes none of the variable consideration.

The majority of the Board preferred alternative 2C.

One Board member preferred that there was no separate rule for usage-based royalties.

Several Board members did not think that the minimum constraint approach, in the situation where an entity sells a sales based royalty and expects to sell 450 units but can only be reasonably assured that they will sell 250 units and therefore only recognises 250 units, provides useful information to readers of the financial statements as they do not describe what happened in that financial period.

One Board member was of the view that the key was reassessment, for example, in a ten year arrangement, for the first 8 years the entity accounts on a cash basis and then in the ninth year, as they now have sufficient information to predict what they will earn, they book a large increase. The member was concerned that this is suspect to creative accounting, and that this situation was inherent in 2C and therefore did not support the option as it was moving away from the revenue model.

Several members were concerned that 2C was contrasting with decisions made regarding the Leasing standard, in particular the minimum variable payments, where it’s booked from day one although there is no threshold recognition criteria such as that they are proposing in 2C.

The Board agreed that the staff will focus on Options 1B, 2B and 2C, with scenarios presented under 2B and 2C with and without reassessment.

The Board ran out of time to discuss collectability. The discussion will be continued on 18 September 2013 at 9:00am.

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