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Journal entry — Revenue — Boards continue to make tentative decisions

Published on: Nov 20, 2012

At their joint meeting yesterday, the FASB and IASB continued redeliberating their November 2011 exposure draft (ED) Revenue From Contracts With Customers. During the meeting, the boards revisited the following topics, which they had discussed earlier this year: (1) constraining revenue, (2) collectibility, and (3) licenses and rights to use.

Constraining Revenue

The boards tentatively agreed to (1) clarify the objective for constraining the cumulative amount of revenue entities may recognize for contracts containing variable consideration, (2) move this constraint to “step 3” in the proposed revenue model (when an entity determines the transaction price), and (3) make minor drafting changes to the indicators (see paragraph 82 of the ED) used to determine when the revenue constraint should apply. Under the clarified objective, revenue would only be included in the transaction price when an entity has a “high level of certainty” that the amount of revenue recognized would not be subject to future reversals. The boards did not agree on the specific wording for the proposed constraint but instead directed the staffs to reflect the boards’ intent in drafting the final standard. The boards also noted that they would address at a future meeting any significant unintended consequences that the staffs identify during further outreach or drafting of the final standard regarding moving the constraint to the ED’s step 3.

Editor’s Note: The boards did not specifically discuss the application of the revenue constraint to asset managers’ accounting for performance-based fees and noted that such application will be discussed at a future meeting. See Deloitte’s April 2012 Asset Management Spotlight for information about this topic.


The boards tentatively decided that all impairment losses attributed to receivables from contracts with customers should be presented “prominently” within operating expenses (i.e., presented on a separate line item when material). This tentative decision changes the ED’s proposed guidance that would have required these impairment losses to be presented adjacent to revenue unless the losses related to a contract that included a significant financing component (which would have been included in operating expenses). Finally, the boards affirmed their decision to not include an explicit “collectibility” threshold (e.g., the “reasonably assured” threshold currently required under U.S. GAAP) in connection with a customer’s credit risk for an entity to recognize revenue.

Licenses and Rights to Use

In response to a request by the boards during their July meeting, the staffs presented the results of their additional analysis and outreach related to the impact of certain restrictions on a customer’s use of intellectual property on determining when and how control transfers (i.e., at a “point in time” or “over time”) and, thus, when revenue can be recognized. After extensive discussion, the boards ultimately disagreed on the appropriate treatment of licenses (the FASB believes that licenses generally transfer “access” to an entity’s intellectual property over time whereas the IASB believes they generally transfer “a right” to an entity’s intellectual property at a point in time). However, in an effort to reach a compromise and maintain a converged standard, the boards directed the staffs to develop indicators for determining when an entity is selling “a right” to use its intellectual property (i.e., transferring control at a point in time) and when an entity is selling “access” to its intellectual property (i.e., transferring control over time). The boards expressed concern about how to “operationalize” such an approach and may discuss the staffs’ proposed indicators at a future meeting.

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