If you're still not quite up to speed on the critical changes that are in store for revenue recognition accounting, the staff of the Financial Accounting Standards Board has made it a little easier to catch up.
FASB will be collecting comments for a few more weeks on its latest proposal to overhaul the accounting for revenue recognition. The staff published a 52-page document in slide-presentation format to explain the proposal and to compare it with current rules so readers can get a better grasp on the changes that are ahead. Given how critical revenue recognition is to any company's financial statements and how extensive the proposed changes are, FASB is taking extra measures to be sure preparers are aware of what's ahead, have considered the implications, and can provide feedback that will be helpful in finalizing the rule.
FASB has been working for several years with the International Accounting Standards Board on developing a new standard for revenue recognition. In Generally Accepted Accounting Principles, revenue recognition has evolved through hundreds of accounting pronouncements issued by various rule-making groups over decades. While GAAP is steeped with highly prescriptive, industry-specific, sometimes even conflicting guidance, the rules under International Financial Reporting Standards are much newer and brief. Both boards sought improvements that would produce more comparable accounting across entities reporting under each separate set of rules.
The recent staff summary document explains the core principle behind the joint FASB-IASB proposal – that companies would recognize revenue to show the transfer of goods or services in an amount that reflects the consideration it expects to receive. It also explains that the timing for revenue recognition is pinned to the transfer of promised goods or services, and it illustrates how those concepts compare with a host of piecemeal requirements that are followed currently.
The staff document explains how the proposed model would address concepts such as “persuasive evidence,” delivery of product or performance of service, collectability, “fixed” or “determinable” as those terms relate to fees or selling prices, loss recognition, licenses and rights to use, deliverables, recognizing revenue over time, contract modifications, and numerous others. It also addresses disclosures and other accounting rules that might be affected by new rules for revenue recognition.
FASB began developing a revenue recognition standard with a discussion document in 2008 followed by a proposed standard in 2010 and a revised proposal in late 2011. The board is accepting comments on the latest proposal through March 13.