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Joint IASB-FASB discussion paper on revenue recognition

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19 Dec 2008

The International Accounting Standards Board and the US Financial Accounting Standards Board have published for public comment a discussion paper (DP) on recognition of revenue.

The DP proposes a single, contract-based revenue recognition model. The model would apply broadly to contracts with customers, although contracts in the areas of financial instruments, insurance, and leasing may be excluded. Under the proposed model, revenue would be recognised on the basis of increases in an entity's net position in a contract with a customer.

With regard to recognition of revenue, the DP states:

In the proposed model, revenue is recognised when a contract asset increases or a contract liability decreases (or some combination of the two). That occurs when an entity performs by satisfying an obligation in the contract.

With regard to measurement of revenue, the DP states:

The boards propose that performance obligations initially should be measured at the transaction price – the customer's promised consideration. If a contract comprises more than one performance obligation, an entity would allocate the transaction price to the performance obligations on the basis of the relative stand-alone selling prices of the goods and services underlying those performance obligations.

Subsequent measurement of the performance obligations should depict the decrease in the entity's obligation to transfer goods and services to the customer. When a performance obligation is satisfied, the amount of revenue recognised is the amount of the transaction price that was allocated to the satisfied performance obligation at contract inception. Consequently, the total amount of revenue that an entity recognises over the life of the contract is equal to the transaction price.

The DP may be downloaded from the IASB's website. Respondents should submit one comment letter to either the IASB or the FASB. The boards will share and consider jointly all comment letters that are received by 19 June 2009. Click for the joint IASB-FASB press release (PDF 56k).

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