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Revenue recognition

Background

Revenue is a crucial number to users of financial statements in assessing an entity’s financial performance and position. However, revenue recognition requirements under IFRSs are different from those under US GAAP and both sets of requirements need improvement. US GAAP comprises broad revenue recognition concepts and numerous requirements for particular industries or transactions that can result in different accounting for economically similar transactions. Although IFRSs have fewer requirements on revenue recognition, the two main revenue recognition standards, IAS 18 Revenue and IAS 11 Construction Contracts, can be difficult to understand and apply. In addition, IAS 18 provides limited guidance on important topics such as revenue recognition for multiple-element arrangements.

Accordingly, the IASB and FASB initiated a joint project to clarify the principles for recognising revenue and to develop a common revenue standard for IFRSs and US GAAP that would:

  • remove inconsistencies and weaknesses in existing revenue requirements
  • provide a more robust framework for addressing revenue issues
  • improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets
  • provide more useful information to users of financial statements through improved disclosure requirements
  • simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

 

Current status of the project

The IASB released a revised exposure draft, ED/2011/6 Revenue from Contracts with Customers, on 14 November 2011, after redeliberations on the previous exposure draft issued in 2010. A finalised IFRS is expected in the second quarter of 2014.

 

Project milestones

DateDevelopmentComments
June 2002 Added to the IASB's agenda
18 December 2008 Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers published Comment deadline 19 June 2009
24 June 2010 Exposure Draft ED/2010/6 Revenue from Contracts with Customers published Comment deadline 22 October 2010
14 November 2011 Exposure Draft ED/2011/6 Revenue from Contracts with Customers published (re-exposure) Comment deadline 13 March 2012

 

Related Discussions

  • Due Process Oversight Committee Chairman’s report

  • Jan 27, 2014

  • Mr Scott Evans reported on the activities of the IFRSF Trustees’ Due Process Oversight Committee. In particular, he noted that the DPOC had instituted ‘lifecycle’ reviews of projects: that for the Revenue project had been completed in October and that for the forthcoming IFRS on 'Regulatory Deferral Accounts' was expected to be approved at the DPOC meeting on 28 January 2014.

  • Revenue recognition

  • Nov 20, 2013

  • The Board discussed various due process steps and agreed to begin the balloting process.

  • Revenue recognition (IASB-FASB)

  • Oct 30, 2013

  • The Boards discussed three issues relating to revenue recognition: (1) constraint on estimates of variable consideration, (2) licenses, and (3) collectability.

  • IASB Chairman and Senior Technical Directors’ reports

  • Oct 17, 2013

  • The IFRS Foundation Trustees received a report from Mr Hoogervorst (IASB Chair) and senior technical directors. An update on the operation of the Accounting Standards Advisory Forum (ASAF) was received, and various IASB projects were discussed.

  • Revenue recognition (IASB-FASB)

  • Sep 17, 2013

  • The staff presented the board it's recommendations on licences and constraint in regards to revenue recognition.

  • Revenue recognition (IASB and FASB)

  • Jul 24, 2013

  • The Boards discussed three aspects of revenue recognition: collectability, accounting for contracts that do not meet Step 1 of the revenue model, and constraint-minimum requirements.

  • IASB projects review

  • Jun 10, 2013

  • Sue Lloyd and Alan Teixeira provided the IFRS Advisory Council with a review the current work of the IASB.

  • Update from the IASB

  • Apr 11, 2013

  • A report was given by Chairman Hans Hoogervorst on the Accounting Standards Advisory Forum, the Effects Analysis working group, and updates on current projects.

  • Revenue recognition (IASB only)

  • Mar 21, 2013

  • The Board was asked by the staff to reconsider its tentative decision to prohibit early application of the new revenue standard.

  • Revenue recognition (IASB and FASB)

  • Feb 20, 2013

  • The Boards discussed questions raised in response to the 2011 revised exposure draft (2011 ED) related to proposed disclosure requirements as well as the proposed transition method, including consideration to early adoption and the effective date.

  • Revenue recognition (IASB and FASB)

  • Jan 30, 2013

  • The Boards were asked to consider questions raised in response to the 2011 revised exposure draft (2011 ED) related to (1) scope, (2) accounting for repurchase agreements, (3) application of the proposals to the asset management industry, (4) consequential amendments associated with the transfer of non-financial assets and (5) disclosure and transition requirements.

  • Revenue recognition

  • Dec 17, 2012

  • The Boards discussed allocating the transaction price to separate performance obligations, accounting for contract acquisition costs, applying the proposed model to bundled arrangements and constraining the cumulative amount of revenue recognised on licences.

  • Revenue recognition (IASB only)

  • Dec 14, 2012

  • The IASB held an education session to discuss allocating the transaction price to separate performance obligations, accounting for contract acquisition costs, applying the proposed model to bundled arrangements and constraining the cumulative amount of revenue recognised on licenses.

  • Insurance contracts

  • Dec 14, 2012

  • The Board discussed and decided on the residual margin measurement of insurance contracts and the impairment of reinsurance contracts in the financial statements.

  • Revenue recognition (IASB/FASB)

  • Nov 19, 2012

  • The Boards discussed the analysis provided by the staff on constraining the cumulative amount of revenue recognised (1) application of the requirements and (2) placement of constraint (step 3 v step 5).

  • Revenue recognition

  • Oct 18, 2012

  • The Boards considered possible improvements and clarifications to the requirements for contract modifications that were proposed in paragraphs 18-22 of the 2011 revised Exposure Draft 'Revenue from Contracts with Customers' and possible clarifications and refinements to the proposals on measuring progress towards complete satisfaction of a performance obligation in paragraph 38-48 of the 2011 ED.

  • Revenue recognition

  • Sep 27, 2012

  • The Boards discussed the following as part of their redeliberations of the proposals including in the 2011 ED (1) the impact of collectibility on presentation, (2) clarifications to the time value of money requirement and (3) contract combinations and distribution networks.

  • Revenue recognition (education session)

  • Sep 25, 2012

  • The IASB held an education session to discuss the following in the context of the 2011 ED (1) clarifications to the time value of money requirement; and (2) application of the term ‘customer’ in the context of arrangement under which an entity promises to transfer benefit to an entity other than the customer.

  • Revenue recognition

  • Sep 24, 2012

  • As a result of feedback received to the Boards’ revised exposure draft 'Revenue from Contracts with Customers' (2011 ED), the staffs brought the following topics to the Boards for consideration: (1) possible improvements to the constraint on the cumulative amount of revenue that can be recognised if the amount of consideration which an entity expects to be entitled is variable; and (2) the impact of collectibility on recognition, measurement and presentation.

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