Revenue — FASB decides to issue ASU on narrow-scope improvements and practical expedients
At its meeting yesterday, the FASB redeliberated its proposed ASU1 that would amend the new revenue standard2 to make certain clarifying improvements as well as add practical expedients related to (1) collectibility, (2) presentation of sales taxes and other similar taxes collected from customers, (3) noncash consideration, and (4) contract modifications and completed contracts at transition. (See Deloitte’s October 2, 2015, Heads Up for more information about the proposed ASU.) The Board reaffirmed its decisions related to the following:
- Collectibility — The Board affirmed its proposed amendments to clarify (1) the objective of the collectibility threshold in step 1 of the new revenue standard3 and (2) when revenue should be recognized in situations in which a contract fails to meet the requirements in step 1. In addition, the Board decided to retain the notion that collectibility must be “probable” for a contract to exist under the new revenue standard and not to lower the threshold to “more likely than not.”
The Board also decided to (1) amend the existing real estate example in ASC 606-10-55-95 through 55-98 to emphasize the collectibility analysis rather than the derecognition requirements and (2) exclude from ASC 606, on the basis of stakeholder concerns, the manufacturer example in the proposed ASU.4 - Presentation of sales taxes and other similar taxes — An entity would be permitted to elect, as a policy decision, to exclude from the transaction price sales taxes and other similar taxes received from customers (i.e., entities may elect to present revenue net of sales taxes and other similar taxes).
- Noncash consideration — Noncash consideration would be measured at fair value on the contract inception date. Further, changes in the fair value after contract inception would be subject to the variable consideration constraint only if the fair value of noncash consideration varies for reasons other than its form.
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Editor’s Note: On the basis of the Board’s deliberations, the final ASU is expected to specify that (1) contract inception is the date on which a contract meets all of the step 1 requirements and (2) changes in the fair value after contract inception are not revenue. However, the Board decided not to provide specific guidance on whether entities would measure the fair value of the noncash consideration by using the spot price or the forward price. |
- Contract modifications and completed contracts at transition — A practical expedient would be added for contract modifications at transition, and the definition of a completed contract would be clarified. The Board also affirmed its decision to allow entities to apply the modified retrospective transaction approach, as of the initial date of adoption, to either (1) all contracts or (2) only contracts that have not been completed.
Further, the Board discussed implementation issues raised by stakeholders regarding the new revenue standard’s disclosure requirements for unsatisfied and partially satisfied performance obligations that include variable consideration. No tentative decisions were reached, and the Board directed the staff to research practical expedient alternatives on this topic and present an update to the Board at a future meeting.
Next Steps
The Board instructed the staff to draft a final ASU incorporating its decisions reached at the meeting.
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1 FASB Proposed Accounting Standards Update, Narrow-Scope Improvements and Practical Expedients.
2 FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.
3 See ASC 606-10-25-1. For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s "Titles of Topics and Subtopics in the FASB Accounting Standards Codification."
4 See the proposed ASU’s paragraphs 606-10-55-98Q through 55-98S.
