Revenue Recognition

Date recorded:

The joint boards discussed the distinctions between components of comprehensive income such as revenues and gains and the merits of such distinctions.

There was concern expressed that although the distinction was believed to be useful, the distinction has proved in the past to be very difficult to operationalise due to the ambiguity of the distinction. It was noted that the distinction did not necessarily imply a gross versus net presentation.

The joint boards requested the staff to further consider the distinction for future discussion.

The joint boards considered whether increases in assets as the result of production can give rise to a component of comprehensive income and whether such increases in assets as the result of production give rise to revenue.

Some board members expressed concern as to the concept of recording revenue as a result of production. It was noted that this could arise where inventory items that were recorded at fair value such as agriculture. Certain board members believed these items should be dealt with separately and this project should focus on the remainder of the items.

It was agreed that the staff would examine the issue further and prepare examples for further consideration by the boards.

The joint boards considered whether information about a reporting entity's subcontracting and outsourcing activities is useful to investors and creditors, and whether information about subcontracting and outsourcing should be provided in the income statement. It was noted that for these purposes subcontracting involved the customer and outsourcing did not.

It was noted that where the contracts resulted in legal layoff of rights and obligations, revenue would not be recorded by the entity that had passed over the legal obligations.

Certain of the joint board members expressed concern as to how to distinguish between subcontracting without legal layoff and outsourcing. The staff proposed that revenue should be allocated between own performance and subcontracting without legal layoff or outsourcing revenue. The joint boards did not express support for this allocation.

The joint boards considered nonreciprocal transfers. The staff proposed defining a nonreciprocal transfer received as "a transaction in which an entity receives an asset or cancellation of liabilities without directly giving value in exchange" The staff further proposed that nonreciprocal transfers should be excluded from revenue. The joint boards agreed that this was a labelling issue and the avoidance of concentration on the use of customer in the revenue definition would avoid the potential problem.

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