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Revenue recognition continued (IASB-FASB)

Date recorded:

The following is a continuation of the 17 September 2013 discussion on revenue recognition.

Collectability

The staff presented to the Board several alternative paths forward. As a minimum, the staff have recommended Option A. The remaining options are:

  • Alternative A: Drafting improvements
  • Alternative B: Collectability threshold in 'Step 1' (that is, no revenue is recognised until threshold is met)
  • Alternative C:Targeted approach for a subset of contracts – for those contracts either:
    1. measure the transaction price net of consumer credit risk or
    2. present impairment losses adjacent to revenue (2011 ED)

The majority of Board members supported A.

One Board member preferred Option A, but to draft this to remove bad debt entirely out of the collectability section as it was misleading to the concept, leaving the only question for entities to consider to be when do they hit the threshold for recognition. This was supported by one other Board member.

Several Board members also supported option B but were concerned about whether this collectability threshold should be consistent with the minimum constraint. They were concerned, however, that if this was the case, then the threshold would be very tight for the constraint, as the collectability threshold concept arises in limited circumstances. As it arises in limited circumstances, one Board member was concerned that they were over engineering the concept.

Several Board members preferred B but were concerned that they would not be able to come to agreement on this based on past discussions. On that basis, they were supportive of A.

One Board member required that if B was the followed path, then for the October meeting the staff also present a draft of the Basis for Conclusion.

One Board member raised the conceptual framework, where they have said that uncertainty would be reflected in measurement. Under this concept in revenue, however, if an uncertainty threshold must first be cleared, then they were reflecting uncertainty in recognition and therefore this was contrary to the conceptual framework.

The Board agreed that the staff would focus on Option A and B. In B, the collectability threshold should be aligned with the constraint and asked the staff to then compare the two results for the next meeting.

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