The staff presented examples to illustrate the difference between the "liability extinguishment view" and the "broad performance view" of revenue recognition. In the former, revenues arise from the extinguishment of obligations to customers. In the latter, revenues arise from the entity's extinguishment of obligations by performing those obligations itself. The examples considered were:

Retailer contracts with customers to provide an extended warranty service. Retailer can engage a third-party administrator to perform the warranty servicing by paying either:

(a) $300 if the administrator legally assumes the obligations, or

(b) $290 if the administrator does not legally assume the obligations (the $10 difference between the $300 in Case (a) and $290 in Case (b) reflects the performance guarantee that Retailer bears in this instance).

In Case (a), Retailer would not recognise any revenue relating to the performance of warranty servicing under either the liability extinguishment view or the broad performance view. However, in Case (b), Retailer would recognise revenue of $300 under the liability extinguishment view (together with an expense of $290 for the administrator's fee). Under the broad performance view, it would recognise revenue of only $10 with respect to the performance guarantee that it provides.

The Board noted that some people believe there are substantive difference between these two examples and consequently would expect different results.

The Board in general appeared to support the broad performance view but noted that they have a preference for more rather than less gross presentation of revenue.