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FASB May Offer Deferral, Early Adoption on Revenue Rule

Tammy Whitehouse | February 2, 2015

In addition to considering a deferral of the new revenue recognition standard, the Financial Accounting Standards Board might also contemplate whether to allow companies that are ready to follow the new standard do so as early adopters.

Board members and staff at the FASB have met with preparers from a number of different companies and in different industries to determine whether companies are moving along a workable time line to adopt the massive new accounting standard on how to recognize revenue, which takes effect in 2017. Staff outreach to assess readiness for the new revenue recognition standard is yielding mixed results, with some companies reporting they are ready to go and others saying they need more time, says FASB spokesman Chris Klimek.

"The FASB has been conducting outreach with organizations to determine whether it is necessary to delay the effective date of the new revenue recognition standard,” Klimek said. “To date, we have received mixed input from stakeholders. The Board will consider that input as part of its decision-making process.” FASB will meet “early in the second quarter of 2015" to hear the outcome of staff research and consider the options. The FASB spokesman also noted that the outreach has included questioning organizations on whether FASB should allow companies to adopt in 2017 even if the board decides to delay the effective date.

FASB’s revenue recognition standard does not permit entities to adopt the standard before the 2017 effective date. The International Accounting Standards Board set the same 2017 effective date, but chose to allow companies to adopt the standard early if they were ready to do so. In the final standard, FASB explains it decided against an early adoption provision because it would reduce comparability in the early stages of adoption. The IASB chose to allow early adoption, however, because its existing guidance on revenue recognition is scant, and the board would be happy to see some pressing revenue recognition issues resolved sooner rather than later.

In a recent meeting with the Joint Transition Resource Group, FASB staff said they are researching a handful of implementation issues to determine if any new guidance should be recommended. In addition to considering a deferral in the effective date, FASB staff is studying whether FASB should offer more guidance on how to determine when an entity is acting as the principal or agent in delivering promised goods or services to customers, which affects how revenue would be recognized. FASB staff also is exploring how licenses are treated under the new standard, especially sales-based or usage-based royalty exceptions. Staff members also are looking at some potential practical expedients that might be useful to preparers focused on sales taxes, transition rules, and shipping costs.

Schnurr-james-1214-updatedJames Schnurr, chief accountant at the Securities and Exchange Commission, said in December if implementation issues lead to new rulemaking, that might provide an indicator of whether a deferral in the effective date is warranted. “Certainly if the parties determine there are implementation issues that require additional standard setting, I would think that would be a reason why you’d have to delay the adoption,” he said.