Liabilities and Revenue Recognition

Date recorded:

The IASB is exploring a revenue recognition approach that focuses on changes in assets and liabilities and that is not overridden by tests based on notions of an earnings process. The Board's working criteria for revenue recognition comprise the 'element criterion' and the 'measurement criterion':

Element criterion: To recognise revenue, there must be either (a) an increase in assets that increases equity without a commensurate investment by owners or (b) a decrease in liabilities that increases equity without a commensurate investment by owners (such as the forgiveness by owners of a debt owned to them by the entity).

Measurement criterion: To recognise revenue, the change in assets or liabilities can be appropriately measured, specifically (a) the assets or liabilities are measured by means of a relevant attribute (such as fair value) and (b) the increase in assets or decrease in liabilities is measurable with sufficient reliability.

This project is a joint project with the US FASB. While the FASB has decided that fair value is the relevant attribute for measuring assets or liabilities at initial recognition or for any fresh-start measurements, and therefore is the relevant attribute for the related measurement of revenue, the IASB has not reached a similar decision. In fact, the IASB has tentatively agreed not to specify the measurement attribute for recognising assets and liabilities arising from a revenue-generating arrangement until it develops measurement concepts for the IASB Framework.

The IASB discussed a series of cases to test the application of the foregoing element and measurement criteria.

The IASB also discussed the recent decisions of FASB's Emerging Issues Task Force on Revenue Recognition in Multiple-Element Revenue Arrangements. [Click here to download the EITF's Draft Abstract on multiple-element revenue arrangements (PDF 77k)].

This was an educational session on Liabilities and Revenue Recognition, and no Board decisions were reached.

Related Topics

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.