The Financial Accounting Standards Board is asking for feedback on its planned fixes to the revenue recognition standard to address implementation challenges around collectibility, taxes, noncash consideration, contract modifications, and other technical issues.
FASB has published an exposure draft to revise the guidance in Accounting Standards Codification Topic 606, which addresses how to account for revenue arising from contracts with customers. FASB describes the proposed amendments as narrow-scope improvements and practical expedients that would not change the core principles of the new revenue recognition standard, which takes effect in 2018.
With respect to collectibility, FASB says it learned from the Joint Transition Resource Group operated in conjunction with the International Accounting Standards Board that some folks have interpreted the words of the original standard in a way that would lead to fewer contracts than the boards intended meeting the collectibility criterion. TRG members and other said it was difficult to determine based on the original guidance when collectibility criterion would be met.
FASB proposes to revise the original guidance to be more clear that the objective of the assessment of collectibility is to determine whether a particular contract is valid and represents a genuine transaction. The amendments also would add a new paragraph to clarify when revenue would be recognized for a contract that fails to meet collectibility criteria under the standard.
FASB also proposes some language to clear up uncertainty around how to reflect sales or other taxes that would be collected from customers. TRG members told FASB they heard from stakeholders that compliance with the original language would have been costly and complicated because of the complexity of tax requirements by jurisdiction. FASB proposes instead to permit entities to make an accounting policy election to exclude tax amounts collected from customers in stating transaction prices.
To address uncertainly around noncash consideration, FASB is proposing amendments that would say more explicitly that the measurement date for noncash consideration is the contract inception date. The amendments also would clarify “that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration,” FASB wrote in its summary of the changes.
FASB says its proposed amendment should reduce the degree of judgment necessary to apply the new revenue recognition standard. That, in turn, should reduce the cost of complying with the standard while also cutting the risk that entities will apply the guidance in different ways. The board is accepting comments on the proposed changes to the new revenue standard by Nov. 16.
The board has already approved a one-year deferral from the original 2017 effective date for the new standard and is working through other revisions meant to address questions on gross-versus-net presentation, identifying performance obligations, and recognizing revenue from licensing arrangements.