Revenue Recognition: Performance Obligation Pass a Hurdle

I met up with Seamus Moran, our resident accounting expert, to get his thoughts about the latest happenings with IFRS.

Last week, on March 13,  the comment period on the FASB and IASB exposure draft “Revenue From Contracts with Customers” closed.  FASB and IASB have just over 20 comment letters – a very small number.  The implication is that that the exposure draft does reflect general acceptance, and therefore will be published as both a US and Internationally Generally Accepted Accounting Standard.

At a recent conference call, FASB and IASB expected to complete their report to both Boards on the comments by early summer, complete their deliberation of the comments by the fall and draft the final standard text by late this year. It is assumed the concept of Performance Obligations would become US GAAP and IFRS in place of the existing standards.  They confirmed that all existing US GAAP and IFRS guidelines would be withdrawn, and that they were in dialogue with the SEC on withdrawing the SEC guidelines on the revenue issue as well.

The open question is when will Performance Obligations become effective?  The Boards have said that they would like this Revenue Recognition standard and the the Lease Accounting standard to be effective at the same time because what isn’t either insurance, interest, or a lease is a revenue arrangement.  However, ascertaining what is generally acceptable in respect of Leases is proving a little elusive, and the Boards have recently diverged a little on the P&L side of the accounting (although both are in agreement that there will be no off-balance sheet leases).  It is therefore likely that the Lease standard might be delayed.

One wonders if the Boards will  define effectivity of the Revenue standard independently of the Lease standard or if they will stick with their resolve to make them co-effective.  The Boards have also said that neither standard will be effective before June 2015.

Here is the gist of the new Revenue Recognition principle and the steps to apply it:

Recognize revenue to depict the transfer of goods or services in an amount that reflects the consideration expected to be entitled in exchange for those goods and services.

Steps to apply the core principles:

  1. Identify the contract with the customer

  2. Identify the separate performance obligations

  3. Determine the transaction price

  4. Allocate the the transaction price

  5. Recognize Revenue when a performance obligation is satisfied

 

Comments:

Post a Comment:
  • HTML Syntax: NOT allowed
About

Focusing on solutions for the Office of Finance, this blog will highlight key financial management market trends, events and other news of interest.

Search

Categories
Archives
« April 2014
SunMonTueWedThuFriSat
  
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
24
25
26
27
28
29
30
   
       
Today