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Journal entry — FASB and IASB complete revenue project redeliberations, decide to reexpose ED

Published on: Jun 15, 2011

At their joint meetings this week, the FASB and IASB (the “boards”) completed redeliberations related to their revenue recognition exposure draft (ED).

Editor’s Note: The FASB staff’s summaries of the June 14 and 15, 2011, joint meeting are available on the FASB’s Web site. More detailed meeting summaries from Deloitte observers are available on Deloitte’s IAS Plus Web site and should not be regarded as official or final.

For further details on all of the tentative decisions reached since redeliberations of the ED began, refer to the following Deloitte accounting journal entries:

Boards Will Reexpose Proposed Revenue Standard

Given the importance of the revenue line in the statement of comprehensive income, and as a result of the many changes made to the revenue recognition proposal in tentative decisions, the boards have decided to expose for public comment a revised ED on revenue recognition. In a joint staff paper, the boards indicated that they expect the revised ED to be issued in August or September of this year and that it will be followed by a 120-day comment period. During the comment period, the staffs will continue their targeted outreach and will consider whether to hold public roundtables. After the comment period, the feedback received will be deliberated by the boards, which may result in a delay in the issuance of the final revenue recognition standard until September 2012, according to the joint staff paper.

Transition Method

The boards unanimously rejected the proposal that the future revenue standard should be applied prospectively. They tentatively decided that an entity will be required to adopt the revenue standard retrospectively through either:

  • A full retrospective application.
  • A retrospective application subject to transition relief as follows. That is, one in which the final standard would:
  1. An entity should not be required to restate contracts that begin and end within the same reporting period.
  2. An entity should be permitted to use hindsight in estimating variable consideration in the comparative reporting periods.
  3. An entity should be required to perform the onerous test only at the effective date unless an onerous contract liability was recognized previously in a comparative period.
  4. An entity should not be required to disclose the maturity analyses of remaining performance for prior periods.

In addition, the boards tentatively decided that if an entity adopts any of the above forms of transition relief, it will be required to (1) state which reliefs have been employed and (2) provide a qualitative assessment of the likely effect of applying those reliefs.

Telecommunications (and Other) Industries

In May, the boards hosted an education session to receive input directly from telecommunications industry representatives to understand their concerns about the proposed revenue model. The primary concern, which is similar to those shared by other industries, pertained to the proposed revenue model’s potential change to current practice regarding the transaction price allocation between a wireless handset and the related network services. Ultimately, the boards decided not to change the proposal’s provisions with regard to these concerns.

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