Big 4 firms are pointing out some unresolved questions on how to apply the new revenue recognition standard, even after the standard setters’ joint Transition Resource Group hashed out the issues and failed to arrive at a consensus on how companies should proceed.
The Transition Resource Group of the Financial Accounting Standards Board and the International Accounting Standards Board met for their final scheduled session to work through four questions on its agenda that have been presented to the TRG as areas of uncertainty in applying the new standard. The group sought to distill the issues around how to treat customer options for additional goods and services, pre-production activities, restrictions and renewals associated with licenses, and whether fix-odds wagering contracts are covered by the standard.
Uncertainty is greatest around licensing, where the TRG debated several implementation issues, especially regarding restrictions in a license around time, geography, or usage. The new standard provides guidance on assessing whether a license of intellectual property is a right to use the asset or a right to access it. In the former case, revenue is recognized at a point in time; in the latter, it is recognized over time. FASB and the IASB both have proposed clarifications to address earlier questions.
FASB’s and IASB’s current proposals for licenses are not grounded in a common concept around when to recognize revenue for right-to-use licenses when performance by the licensor is complete and when the licensee can begin to benefit from the underlying intellectual property, says PwC. “The discussion at the TRG meeting did not provide any clarity on this topic,” writes PwC. “This lack of clarity continues to make it difficult for entities with right-to-use licenses to fully assess the impact of the new revenue standard.”
An alert by EY indicates agreement that the issue is not settled. “TRG members expressed diverse views on certain implementation issues related to restrictions and renewals of licenses of intellectual property,” the firm wrote. “It is unclear whether or how the boards will address these issues.” Deloitte says because TRG members did not reach a general agreement on the questions, they have asked for additional clarifications.
Since mid-2014, the TRG met a total of six times to work through more than 40 issues, recommending a handful of them to FASB and IASB for further standard setting. Both boards are working through some limited amendments to their respective standards to provide clarifications around licensing, performance obligations, and some practical expedients.
Both boards also agreed to delay the effective date of the standard from 2017 to 2018 to give more time for adoption. The most recent session is the last scheduled for the TRG, although the boards have indicated they may continue TRG activities if they deem it necessary to do so.