The Financial Accounting Standards Board has wrapped up several key decisions around narrow improvements to the new revenue recognition requirements, but its work is not finished.
The board met recently to consider comments and affirm its proposed guidance around collectibility, presentation of sales taxes, noncash consideration, contract modifications, and completed contracts at transition. The board did not come to a final decision, however, on whether to add a practical expedient to certain disclosure requirements regarding remaining performance obligations, instead asking the staff to perform additional research on the possible effects of such new provisions.
The board is stuck on how to address concerns raised through implementation efforts that a disclosure requirement focused on remaining performance obligations might be difficult to prepare and to audit in certain cases. Stakeholders are worried they may have to develop numbers strictly to meet the disclosure requirement that would not be necessary for purposes of recognizing revenue in the financial statements. FASB’s staff offered relief ideas, but FASB members had concerns about all of them leaving potentially important information unavailable to investors.
“I want to be really careful with what changes we make to this disclosure, if any,” said FASB member Marc Siegel. “This disclosure has always been controversial. We tried to give practical expedients, and we negotiated those with investors and preparers in the room together about how to trade off costs and benefits. I’m afraid about the slippery slope if we say we are now going to start picking away at those disclosures.”
The new standard on revenue recognition takes effect in 2018, after FASB already approved a one-year delay, requiring entities to follow a new five-step process for determining when and in what amounts to recognize revenue in financial statements. FASB is winding down a handful of standard-setting projects to provide clarifications to the standard based on questions that emerged from FASB’s Joint Transition Resource Group with the International Accounting Standards Board.
In addition to the narrow-scope improvements and practical expedients, FASB also is developing guidance on identifying performance obligations, licensing, and recognizing revenue on a gross versus net basis. According to the board’s technical agenda, the board has not set a final target for completing the narrow-scope improvements and practical expedients, but expects to complete the others in the first quarter.