FASB and IASB Discuss Comments Received on, and Redeliberations Plan Related to, Their Project on Revenue Recognition

Published on: 16 Dec 2010

On December 14, the FASB and IASB discussed a plan to redeliberate their exposure draft (ED) Revenue From Contracts With Customers, which was released for public comment in June 2010. At the meeting, the FASB and IASB staffs summarized the outreach performed and feedback received on the comment letters. The purpose of the meeting was to inform the boards about the status of the project, so they did not vote on any matters.

The FASB and IASB have received 986 comment letters, primarily from North American preparers, individuals, accounting firms, users, professional bodies, and industry organizations. Various industries were represented in the responses, including construction, manufacturing, telecommunications, technology, pharmaceutical, biotechnology, financial services, consulting, entertainment, energy and utilities, freight and logistics, and industries with significant franchising operations (e.g., hospitality and fast food restaurant chains).

Most respondents generally supported the boards’ efforts to jointly develop a single comprehensive and converged revenue recognition model for U.S. GAAP and IFRSs. However, such support was tempered by their concerns about specific aspects of the ED. Many respondents also question whether a single model can be applied consistently across a wide range of industries within the scope of the project. In particular, many think that construction contracts are sufficiently different to justify a separate model.

The staffs refer to the concepts of (1) transfer of control and (2) separation of performance obligations as the two “fundamental revenue issues.” Using the input from the comment letters and other outreach activities, the staffs plan to prepare recommendations on the two fundamental issues for the boards to consider at their joint meeting in January 2011. In the following months, the boards will also focus on concerns about the practicality (and costs vs. benefits) of certain provisions of the ED. Those provisions include contract modifications, collectibility, time value of money, variable consideration, allocating the transaction price, onerous performance obligations, warranties, required disclosures, and retrospective application. Also, to deal with the issues and concerns identified in connection with the proposed cost guidance, the FASB has added a full-time staff member to analyze them concurrently with the redeliberation of revenue issues. Finally, the staff highlighted certain risks, including that the implementation guidance might not be developed, and that the final standard might not be fully vetted with users and others (through outreach activities) and field tested, by the middle of 2011.

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