The Financial Accounting Standards Board will meet next week to review staff research on a possible delay of the new revenue recognition standard and decide whether to formally consider it.
FASB said in November it had received many requests, both written and through direct interaction, for the board to move the 2017 effective date for the massive new standard further into the future. FASB and the International Accounting Standards Board issued joint standards in May 2014, outlining an entirely new process that companies will need to follow to determine the proper timing, amounts and measurements for revenue recognized in financial statements.
In response to calls for delay, FASB tasked its staff with performing research and outreach on whether a delay was warranted. The board also indicated in addition to a deferral, it might consider allowing early adoption, which is currently prohibited under FASB's standard but permitted by the IASB. Early adoption would allow companies that are prepared to move forward with the new standard to do so.
FASB’s agenda for its upcoming board meeting also indicates the board will begin discussing the overall benefits, costs, and complexities of providing new revenue recognition guidance regarding identifying performance obligations and licensing. FASB agreed with the IASB to consider recommendations from staff members and the Joint Transition Resource Group in both of those areas, in addition to a possible deferral of the effective date of the entire standard.
Companies that would consider adopting the new revenue recognition standard on a full retrospective basis, meaning presenting three years worth of financial information as if the standard had always been in effect, should theoretically be keeping a parallel set of books now to account for revenue in 2015 under both the existing and new standard. That will give them the historical information they need when 2017 opens to present information for 2015 and 2016 under the new standard.
The Transition Resource Group is exploring about 40 different implementation issues, and it elevated questions on licensing and identifying performance obligations to the boards to consider issuing additional guidance. With respect to licensing of intellectual property, FASB plans to explore some specific aspects of the standard to determine if and what kind of additional guidance to offer. The board will discuss questions around determining an entity’s promise in granting a license, sales-based and usage-based royalties, and contractual restrictions.
As for performance obligations, FASB has decided to add some illustrative examples to the standard to clarify how the board intends for the guidance to be applied. FASB also decided it will add further amendments to address questions around identifying goods or services subject to separation guidance, applying the distinct guidance, and accounting for shipping and handling.
FASB Vice Chairman James Kroeker has said he won’t be sympathetic to companies that are in need of the delayed effective date simply because they delayed or stalled their own implementation efforts. “If, as at least one board member fears, the majority of folks have not begun a process of adoption, that won’t be a good fact pattern in my mind in terms of saying a deferral is warranted,” he said in November as the board began considering a possible deferral.
James Schnurr, chief accountant of the Securities and Exchange Commission, said early in the discussion of a possible delay he would view any need for new guidance as an indicator that a delay might be in order. “It depends on a number of things, but 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 in December.