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Revenue recognition

Background

Revenue is a crucial number to users of financial statements in assessing an entity’s financial performance and position. However, revenue recognition requirements under IFRSs are different from those under U.S. GAAP and both sets of requirements need improvement. U.S. GAAP comprises broad revenue recognition concepts and numerous requirements for particular industries or transactions that can result in different accounting for economically similar transactions. Although IFRSs have fewer requirements on revenue recognition, the two main revenue recognition standards, IAS 18, Revenue, and IAS 11, Construction Contracts, can be difficult to understand and apply. In addition, IAS 18, provides limited guidance on important topics such as revenue recognition for multiple-element arrangements.

Accordingly, the IASB and FASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for IFRSs and U.S. GAAP that would:

  • Remove inconsistencies and weaknesses in existing revenue requirements.
  • Provide a more robust framework for addressing revenue issues.
  • Improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets.
  • Provide more useful information to users of financial statements through improved disclosure requirements.
  • Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

At their February 18, 2015, meeting, the IASB and FASB decided to make some improvements on licenses of intellectual property and identifying performance obligation.

At its April 1, 2015, meeting, the FASB tentatively decided to defer for one year the effective date of the new revenue standard for public and nonpublic entities reporting under U.S. GAAP.

On August 12, 2015, the FASB issued an ASU to formally defer the new revenue standard by one year.

 

Current status of the project

This project has been completed. ASC 606, Revenue From Contracts With Customers, was issued on May 28, 2014. With the exception of certain technical corrections, the issuance of ASU 2016-12 completes the FASB’s deliberations of clarifications to the new revenue standard.

 

Project milestones

Date Development Comments
June 2002 Added to the IASB's agenda.
December 19,  2008 Discussion Paper, Preliminary Views on Revenue Recognition in Contracts With Customers, published. Comment deadline June 19, 2009.
June 24, 2010 Exposure Draft ED/2010/6 Revenue From Contracts With Customers published. Comment deadline October 22, 2010.
November 14,  2011 Exposure Draft ED/2011/6, Revenue From Contracts With Customers, published (reexposure). Comment deadline March 13,  2012.
May 28, 2014 ASC 606 and IFRS 15, Revenue From Contracts With Customers, issued.

Effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016, for public entities. Early application is not permitted (however, early adoption is optional for entities reporting under IFRSs).

April 29, 2015 Proposed ASU, Deferral of the Effective Date.

Comment deadline May 29, 2015.

May 12, 2015 Proposed ASU, Identifying Performance Obligations and Licensing.

Comment deadline June 20, 2015.

August 12, 2015
ASU, Deferral of the Effective Date.
For public business entities, as well as certain nonprofit entities and employee benefit plans, the effective date is annual reporting periods, and interim periods therein, beginning after December 15, 2017. The effective date for all other entities is one year later than this (i.e., December 15, 2018).
August 31, 2015 Proposed ASU, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)
Comment deadline October 15, 2015.
September 30, 2015 Proposed ASUNarrow-Scope Improvements and Practical Expedients
Comment deadline November 16, 2015.
March 17, 2016 ASU 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) For public business entities, as well as certain nonprofit entities and employee benefit plans, the effective date is annual reporting periods, and interim periods therein, beginning after December 15, 2017. The effective date for all other entities is one year later than this (i.e., December 15, 2018).
April 14, 2016 ASU 2016-10, Identifying Performance Obligations and Licensing For public business entities, as well as certain nonprofit entities and employee benefit plans, the effective date is annual reporting periods, and interim periods therein, beginning after December 15, 2017. The effective date for all other entities is one year later than this (i.e., December 15, 2018).
May 9, 2016 ASU 2016-12, Narrow-Scope Improvements and Practical Expedients For public business entities, as well as certain nonprofit entities and employee benefit plans, the effective date is annual reporting periods, and interim periods therein, beginning after December 15, 2017. The effective date for all other entities is one year later than this (i.e., December 15, 2018).
May 18, 2016 Proposed ASU,
Technical Corrections and Improvements to Update 2014-09, 'Revenue From Contracts With Customers'
Comment deadline July 2, 2016.
September 19, 2016
Proposed ASU, Technical Corrections and Improvements to Update 2014-09, 'Revenue From Contracts With Customers' (Topic 606) — Additional Corrections
Comment deadline October 4, 2016.
December 21, 2016
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.