Boards Discuss Impact of Revenue Project on Specific Industries and Nonpublic Entity Disclosures

Published on: 13 Jun 2011

At recent board meetings, the FASB and IASB (the “boards”) jointly and individually discussed what the impact of their revenue recognition project would be on certain industries and on nonpublic entity disclosure requirements. This journal entry summarizes the tentative decisions related to (1) costs of products manufactured under long-term production programs (which primarily affect the aerospace and defense industry), (2) alternative revenue programs for rate-regulated entities, and (3) nonpublic entity disclosure requirements.

Editor’s Note: The FASB staff’s summaries of the May 31, 2011, joint meeting and June 8, 2011, FASB-only meeting are available on the FASB’s Web site. A more detailed meeting summary from Deloitte observers at the May 31 joint meeting is available on Deloitte’s IAS Plus Web site and should not be regarded as official or final.

For further details on the revenue project, including discussions of the boards’ tentative decisions, refer to the following Deloitte accounting journal entries:

Aerospace and Defense Industry — Program Accounting

At their May 31 meeting, the boards agreed that the accounting for “costs of products manufactured for delivery under long-term production programs” would be outside the scope of the revenue recognition project. This accounting is also referred to as “program accounting” and is used by some entities in the aerospace and defense industry to account for such costs. Although current practice would not be changed, the boards indicated that there is diversity in practice and that an opportunity exists to converge U.S. GAAP and IFRSs in this area and to improve the reporting for such costs in future standard setting.

Rate-Regulated Industry — Alternative Revenue Programs

Certain rate-regulated entities participate in alternative revenue programs and follow the guidance under U.S. GAAP in ASC 980-6051 on regulated operations. The FASB tentatively decided to (1) retain the existing requirements for alternative revenue programs currently within the scope of ASC 980-605 (which the FASB previously identified would be superseded by the boards’ exposure draft on revenue recognition) and (2) require that these revenues be presented separately from rate-regulated revenues (which are in the scope of the revenue project). In addition, the FASB identified the guidance in ASC 980 as a potential topic for future convergence standard setting with the IASB.

Disclosure Requirements for Nonpublic Entities

During its outreach, the FASB staff identified a number of areas in which costs related to certain quantitative disclosure requirements for nonpublic entities did not appear to be justified. The FASB generally agreed with the staff’s recommendations and tentatively decided on the following changes:

  • Quantitative disclosure of disaggregated revenue will only be required for goods or services transferred at a point in time and for those transferred continually over a period of time. In addition, nonpublic entities will be required to disclose qualitative information on “how economic factors (such as type of customer, geographical location of customers, and type of contract) affect the amount, timing, and uncertainty of revenue and cash flows.”
  • Disclosure of a reconciliation of opening and closing balances for (1) contract assets and liabilities, (2) onerous contract liabilities, and (3) capitalized acquisition and fulfillment costs will not be required.
  • Quantitative disclosure of the amount of the transaction price allocated to remaining performance obligations and the expected timing of their satisfaction will not be required.
  • Disclosures about judgments, and changes in judgments, that may “significantly affect the determination of the amount and timing of revenue” will apply to nonpublic entities, except for the following:

1. The judgments, and changes in judgments, used in determining:

a. The timing of satisfaction of performance obligations, and

b. The transaction price and allocating it to performance obligations.

2. Information about the methods, inputs, and assumptions used to:

a. Determine the transaction price in accordance with the proposed requirements,

b. Estimate standalone selling prices of promised goods or services,

c. Measure obligations for returns, refunds, and other similar obligations, and

d. Measure the amount of any liability recognized for onerous performance obligations (including information about the discount rate).


[1] For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s "Titles of Topics and Subtopics in the FASB Accounting Standards Codification."

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