Revenue Recognition

Date recorded:


The Boards discussed how an entity should account for a contract that includes some performance obligations that are within the scope of the revenue model and other performance obligations that are within the scope of other standards (e.g. leases, insurance contracts, financial instruments and guarantees).

After a brief discussion both Boards agreed that that an entity should apply the following hierarchy to separate and measure a component of a contract that is within the scope of another standard:

  1. (a) Level A-If the other standard addresses both separation and measurement of a component of a contract, apply that standard to separate the contract and measure that component.
  2. (b) Level B-If the other standard addresses only separation but not measurement, apply that standard to identify the separate component within that contract and use the revenue model to measure that component (ie by allocating transaction price to it on the basis of relative standalone selling prices).
  3. (c) Level C-If the other standard does not address separation or measurement, apply the revenue model.

This hierarchy is consistent with the guidance currently in US GAAP and based on feedback from constituents is working relatively well.

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