Revenue recognition (IASB only)

Date recorded:

At its February 2013 meeting, the IASB tentatively decided to require an entity to apply the revenue standard for annual reporting periods beginning on or after 1 January 2017 and change its proposal in the 2011 exposure draft to prohibit early application of the standard. The primary reason for prohibiting early application of the standard was to avoid creating a lack of comparability between entities for an extended period of time.

However, following the February meeting, the staff received feedback highlighting concerns with the Board’s tentative decision to prohibit early application. In particular, the tentative decision was seen to create difficulties in some jurisdictions that were intending to apply the revenue standard early in order to resolve some practical issues arising from existing IFRS requirements (specifically in relation to different views in the interpretation and application of IFRIC 15 Agreements for the Construction of Real Estate related to the appropriate pattern of revenue recognition for multi-unit residential real estate).

As a result, the staff asked that the Board reconsider its tentative decision to prohibit early application of the new revenue standard. Note that this discussion did not address transition for first-time adopters of IFRSs.

Mixed views were expressed by Board members.

Some, noting the long transition period for the new standard and the importance of the revenue line item in the financial statements, preferred to retain the previous Board tentative decision to prohibit early application in order to avoid comparability issues.

Others expressed concerns with prohibiting early application. Reasons for this view included (1) a belief that the standard would improve accounting for revenue, and thus, entities should not be precluded from adopting the standard before its effective date, as well as (2) acknowledging, as outlined in the staff paper, that the standard should resolve some pressing issues in practice arising from existing requirements.

Hearing the latter point, one Board member suggested permitting early application of portions of the standard that would resolve the practical issues related to IFRIC 15, but not permitting early application of the remainder of the revenue standard. However, the staff expressed concerns regarding whether the IFRIC 15-component was discrete enough to amend the scope of permitted early application and also noted that this issue is not limited to IFRIC 15.

In an attempt to be amenable to the differing views of Board members on the topic of early application, several alternative ideas were suggested, including: (1) reducing the transition time by requiring application for annual reporting periods beginning on or after 1 January 2016 (and then permitting early application), or (2) restricting the ability to early adopt until a period closer to the mandatory effective date (e.g., early application is permitted but not before 1 January 2015). Both of these alternatives attempted to reduce the length of time comparability issues would be present.

When put to a vote, the Board tentatively supported the staff recommendation that the Board revise its previous tentative decision and permit early application of the revenue standard (as was proposed in the 2011 exposure draft).

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