Revenue — Redeliberations of Exposure Draft Essentially Complete

Published on: 21 Feb 2013

At their joint meeting yesterday, the FASB and IASB essentially completed redeliberating their November 2011 exposure draft (ED) Revenue From Contracts With Customers. During the meeting, the boards discussed the following topics: (1) transition and effective date and (2) required disclosures.

Transition and Effective Date

The boards tentatively decided that in applying the proposed model, entities would have the option of using either retrospective transition (with certain practical expedients) or a modified approach.

According to the boards’ agenda papers for the meeting, under the modified approach, an entity would recognize “the cumulative effect of initially applying the revenue standard as an adjustment to the opening balance of retained earnings for the current year” (i.e., the year of adoption). The new revenue standard would apply to new contracts created on or after the effective date and to existing contracts as of the effective date. (The new revenue standard would not apply to contracts that were completed before the effective date.) In the year of adoption, entities would also be required to disclose differences in their financial statement line items that resulted from their application of the new standard rather than the superseded guidance.

The boards decided that the final standard will be effective for reporting periods (fiscal and interim) beginning on or after January 1, 2017, for public entities. Early application would not be permitted.

Editor’s Note: The FASB is expected to discuss the effective date and required disclosures for nonpublic entities at a future meeting.

Required Disclosures

The boards tentatively decided to require entities to disclose the following (as summarized in the boards’ agenda papers):

  • A disaggregation of revenue to “depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.” To achieve this objective, an entity would need to consider (1) “disclosures presented outside the financial statements, for example, in earnings releases, annual reports or investor presentations”; (2) information reviewed internally for evaluating operating segment performance; and (3) other factors used by the entity or by users of its financial statements to evaluate performance or allocation of resources. A reconciliation of the disaggregated information to total revenue would also be required.
  • Certain information about changes in contract balances, including (1) “the opening and closing balances for an entity’s contract assets and contract liabilities (this would be disclosed as quantitative data),” (2) an explanation of unusual or nonrecurring changes in an entity’s contract assets and contract liabilities, and (3) the amount of revenue recognized in the period related to previously recognized contract liabilities. Entities would also be required to disclose the opening and closing balances for trade accounts receivable (unless these amounts are otherwise included in the financial statements or notes to the financial statements).
  • For contracts that are expected to extend past one year, (1) “the aggregate amount of the transaction price allocated to remaining performance obligations” and (2) “an explanation of when the entity expects to recognise that amount as revenue.” Unless a renewal represents a material option, revenue related to the renewal would not be included in the entity’s analysis. Further, the transaction price an entity includes in its analysis of the remaining performance obligations would be the transaction price after it applies constraint guidance (see Deloitte’s November 20, 2012, journal entry for information about the boards’ earlier decisions related to constraint of the transaction price). Finally, an entity would not be precluded from including in its analysis contracts extending less than a year.
  • Information about assets recognized from costs to obtain or fulfill a contract, including (1) the closing balances (by main category of asset), (2) the amount of amortization recognized for the period, and (3) the method of amortization.
  • Certain information about performance obligations (e.g., types of goods or services, significant payment terms, typical timing of satisfying obligations, and other provisions).
  • A description of the significant judgments, and changes in those judgments, that affect the amount and timing of revenue recognition.
  • Information about the policy decisions made by the entity related to the time value of money and costs to obtain or fulfill a contract (i.e., whether the entity used the practical expedients allowed under the model).
  • Information about the methods, inputs, and assumptions used to determine the transaction price and to allocate amounts to performance obligations. Further, a description of “how the entity determined the minimum amount of revenue that would not be subject to a significant revenue reversal and was therefore recognized.”

The FASB tentatively decided that on an interim basis, entities would be required to disclose the following in addition to the information required under ASC 270:1 (1) disaggregation of revenue, (2) contract asset and contract liability balances and an explanation for significant changes in those balances since the previous period-end, and (3) analysis of the remaining performance obligations. The IASB, however, tentatively decided that entities would be required to disclose only the disaggregation of revenue in addition to the information required under IAS 34.2


[1] FASB Accounting Standards Codification Topic 270, Interim Reporting.

[2] IAS 34, Interim Financial Reporting.

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