Staff members of both the U.S. and international accounting rule makers are recommending the boards re-open their massive joint standard on revenue recognition to clarify specific aspects of the requirements.
The Financial Accounting Standards Board and the International Accounting Standards Board will meet in joint sessions starting on Wednesday to discuss a variety of common projects, not the least of which is implementation concerns that have arisen with the adoption of the new rules on revenue recognition. The rules take effect in 2017, but companies are working now to prepare to adopt them in a way that will provide three years worth of comparative data at the start of 2017. The Joint Transition Resource Group has fielded nearly 40 questions that companies have encountered, and has referred a handful of those to FASB and IASB to consider for possible revisions or clarifications to the written standards.
FASB staff has performed its research on questions surrounding licenses and performance obligations, and has recommended FASB add a project to its technical agenda to consider revisions. The staff is still researching questions surrounding a potential deferral of the effective date and around recognizing revenue on a gross vs. net basis, so has not made any recommendations to FASB on those questions.
With respect to licenses, FASB staff is suggesting the board consider implementation guidance to help companies in determining the nature of an entity’s promise in granting a license, and in handling constraints with respect to sales-based and usage-based royalties. FASB staff also recommends the board address when an entity should apply the guidance on determining the nature of its promise in granting a license, and how contractual restrictions would affect the identification of promised goods or services in a contract with a customer.
In an educational session last week, FASB Chairman Russell Golden sounded receptive to the staff’s recommendation on determining an entity’s promise in granting a license. “This was excellent staff work,” he said. “It’s an excellent process. This is the culmination of lot of work over the last few months, and the views you’ve brought are excellent for us to consider.” Memos provided by the staff to FASB members suggest the staff is prepared to draft a proposed update to accounting standards based on whatever feedback it receives from board members.
With respect to performance obligations, FASB staff recommend that the board open another project to improve the guidance on identifying performance obligations, specifically focusing on identifying promised goods or services, the concept of “distinct” in the context of a contract, and shipping and handling services. FASB staff are prepared to draft and circulate a proposed accounting standards update on that aspect of the standard as well.
The IASB staff also is recommending its board pursue similar guidance in both areas of the standard.