As standard setters make revisions and clarifications to the new revenue recognition standard, the accounting profession is starting to churn out some advice of its own on how to apply the new requirements to specific industry sectors.
The Financial Reporting Executive Committee of the American Institute of Certified Public Accountants has released for public comment working drafts of implementation issues around the new revenue recognition requirements that will be of interest to those in the aerospace and defense sector and in the investment asset management sector. The AICPA has assembled 16 industry task forces to examine numerous industry-specific implementation questions that are emerging as companies prepare to abandon the industry-specific guidance in current GAAP and adopt the new principles-based guidance that is meant to apply to all entities, regardless of the type or size of business they operate.
The working drafts provide insight and examples around how to address nine specific questions that the AICPA has identified in those sectors -- seven for aerospace companies and two for entities in asset management, says Kim Kushmerick, senior technical manager at the AICPA. So far, these represent the tip of the iceberg in terms of issues the AICPA plans to address in similar working drafts, she says.
“These are a handful of issues from only two task forces,” says Kuskmerick. “We expect next year to have many more batches of issues that will go out for informal comment. This really is just the beginning of getting issues out for informal comment.” Ultimately, the AICPA plans to produce a revenue recognition guide to address implementation issues explored by all 16 industry task forces.
The AICPA’s goal is not to produce official guidance but to help provide some industry-specific perspective for those who are accustomed to more industry-specific rules, says Kushmerick. The first batch of issues for aerospace and defense companies address acceptable measures of progress for recognizing revenue when performance obligations are met over time, accounting for contract costs, variable consideration, the existence of a contract, transfer of control, significant financing components, and allocation of transaction price when there are multiple performance obligations. For asset management companies, the issues include identifying the customer in a contract and recognizing deferred commission expenses.
The Joint Transition Resource Group of the Financial Accounting Standards Board and the International Accounting Standards Board is doing its own exploration of implementation challenges, cataloging dozens of questions so far and recommending a handful to the boards for further standard setting. Both boards are issuing clarifications on specific aspects of the standard meant to address implementation questions that have surfaced. The standards take effect in 2018 after both boards approved a one-year deferral.
Staff at the Securities and Exchange Commission have openly fretted about the AICPA’s effort to address industry-specific questions. “Based on our discussions with some individuals involved in these groups, we have concerns that the issues that have been identified have not been elevated to the TRG,” said deputy chief accountant Wesley Bricker in a recent speech. “I caution the task forces to avoid the pressure to resolve issues with judgments that are not consistent with the principles of the new revenue standard regardless of whether those judgments represent a consensus view of a task force. Such resolutions, including those that seek to avoid raising issues to the TRG in order to preserve existing reporting or to avoid a possible outcome that may not be preferred are not appropriate.”
The AICPA is monitoring TRG activity and assuring its task force efforts do not duplicate or depart from TRG discussions, says Kushmerick. “Anything that is out there currently being discussed by the TRG we have put on the back burner,” she says. “It doesn’t make sense for us to expose something if it is on the TRG agenda, but we’ve referenced a few TRG discussions within our papers.”
The AICPA is accepting comments on its drafts through the end of the year.