The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) today published for public comment a draft standard to improve and align the financial reporting of revenue from contracts with customers and related costs.
If adopted, the proposal would create a single revenue recognition standard for International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP) that would be applied across various industries and capital markets. The publication of this joint proposal represents a significant step forward toward global convergence in one of the most important and pervasive areas in financial reporting. The proposed standard would replace IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. In US GAAP, it would supersede most of the guidance on revenue recognition in Topic 605 of the FASB Accounting Standards Codification.Online GST Certification Course by TaxGuru & MSME- Click here to Join
The core principle of the draft standard is that an entity should recognise revenue from contracts with customers when it transfers goods or services to the customer in the amount of consideration the entity receives, or expects to receive, from the customer. The proposed standard would improve both IFRSs and US GAAP by:
In developing the proposals, the boards considered more than 220 comment letters received on their discussion paper, Revenue Recognition in Contracts with Customers, in addition to feedback received from interested parties through an extensive outreach programme, including workshops with preparers. The boards will undertake further outreach activities during the exposure draft’s comment period to ensure that the views of all interested parties are taken into consideration when finalising the standard.
Commenting on the exposure draft, Sir David Tweedie, chairman of the IASB, said:
The proposal by the two boards is the result of our intensified joint efforts. It is an important step towards a single global principle-based standard that would make it absolutely clear when revenue is recognised—and why. We shall want to hear the views of all those affected by the proposals.
Robert Herz, chairman of the FASB, said:
This proposal marks a key milestone in our joint efforts to improve and converge our standards in one of the most important and pervasive areas in accounting. The unanimous agreement of the boards on this proposal is the culmination of an intensive process of working together jointly. The proposed new standard not only seeks to reduce complexity by streamlining the way revenue recognition principles are applied across various industries and transactions, but it also aims at eliminating inconsistencies in existing revenue recognition standards and practices.
The exposure draft Revenue from Contracts with Customers is open for comment until 22 October 2010 and can be accessed via the ‘Comment on a Proposal’ section of www.iasb.org or on www.fasb.org. A live webcast introducing the proposals is planned for early July – details will be available on the FASB and IASB websites soon. An IASB ‘Snapshot’ and an ‘FASB In Focus’, high level summaries of the proposals, will be available in due course to download free of charge from the IASB and FASB websites: http://go.iasb.org/revenue+recognition and http://www.fasb.org.