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FASB clarifies revenue guidance on practical expedients

  • FASB document Image

May 10, 2016

The FASB has issued Accounting Standards Update (ASU) No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” which amends certain aspects of the Board’s new revenue standard, ASU 2014-09, “Revenue From Contracts With Customers.”

The amendments, which were issued in response to feedback received by the FASB-IASB joint revenue recognition transition resource group (TRG), include the following:

  • Collectibility — ASU 2016-12 clarifies the objective of the entity’s collectibility assessment and contains new guidance on when an entity would recognize as revenue consideration it receives if the entity concludes that collectibility is not probable.
  • Presentation of sales tax and other similar taxes collected from customers — Entities are permitted to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., to exclude from the transaction price sales taxes that meet certain criteria).
  • Noncash consideration — An entity’s calculation of the transaction price for contracts containing noncash consideration would include the fair value of the noncash consideration to be received as of the contract inception date. Further, subsequent changes in the fair value of noncash consideration after contract inception would be subject to the variable consideration constraint only if the fair value varies for reasons other than its form.
  • Contract modifications and completed contracts at transition — The ASU establishes a practical expedient for contract modifications at transition and defines completed contracts as those for which all (or substantially all) revenue was recognized under the applicable revenue guidance before the new revenue standard was initially applied.
  • Transition technical correction — Entities that elect to use the full retrospective transition method to adopt the new revenue standard would no longer be required to disclose the effect of the change in accounting principle on the period of adoption (as is currently required by ASC 250-10-50-1(b)(2)); however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted.

The ASU notes that in light of the following, there may be “minor differences in financial reporting outcomes between U.S. GAAP and IFRS” as a result of the ASU’s amendments:

  • IFRS 15, Revenue From Contracts With Customers, does not allow a policy election for the presentation of sales taxes on a net basis.
  • IFRS 15 does not prescribe the measurement date for noncash consideration.
  • The different dates associated with an entity’s application of (1) the practical expedient for contract modifications and (2) the term “completed contracts” for transition purposes.

The ASU’s effective date and transition provisions are aligned with the requirements in the new revenue standard, which is not yet effective. For more information, see the ASU on the FASB’s Web site. Stay tuned for Deloitte's Heads Up newsletter on this topic.

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