IASB Considers Deferral for Revenue Recognition Standard

Now that the new revenue recognition standard is likely to be delayed by a year in the United States, international rule makers are considering the same for companies that file under International Financial Reporting Standards.

The staff of the International Accounting Standards Board is recommending the board consider deferring the required effective date for the new standard to Jan. 1, 2018, just as FASB is already advocating for companies that file under U.S. GAAP. “IFRS 15 is a converged standard with U.S. GAAP,” the staff writes in an agenda paper to prepare for the board’s next regular meeting. “We think that it is less confusing for the market if both IFRS and U.S. GAAP preparers apply the new standard at the same time.”

In a detailed analysis of reasons for a delay, the staff points out that FASB’s move toward a deferral would result in significant timing differences in application of the new standard, with GAAP filers waiting until 2018 to apply the standard and IFRS filers applying it for the first time in 2017. The staff notes the IASB already permits early adoption, and FASB is moving toward allowing early adoption, which will already produce some timing differences in adoption. But deferring the IFRS effective date “would be expected to significantly reduce the frequency of those differences,” the staff writes.

Staff members provide other reasons for a deferral for the board to consider. For starters, IFRS entities applying the new standard, called IFRS 15, are likely to resist a 2017 effective date if GAAP filers are permitted an extra year, especially foreign private issuers in the United States that file under IFRS.

The IASB is considering some limited amendments to the international standard based on issues raised by the two boards’ Joint Transition Resource Group, which could produce some uncertainty for companies about how to proceed, the staff says. “Although the amendments proposed are limited (and are intended to clarify, rather than change, the requirements in IFRS 15), any uncertainty linked to the proposed amendments cannot be completely removed until the IASB decides to either finalize or not proceed with them,” the agenda paper says.

Amendments under consideration focus on the guidance around collectibility, and the IASB staff is recommending the board not proceed with them. The staff believes any benefit of providing clarifications would not outweigh costs or consequences. “This is primarily because we do not anticipate that any practical change in outcomes would arise if any of the clarifications discussed in this paper were made,” the staff says.

Whether or not the board decides to go forward with changes to the guidance, the uncertainty of possible change combines with the later-than-planned issuance of the standard when the effective date was originally set to reduce the overall time available to companies to prepare for adoption.

The staff says the IASB also has received a number of letters, mainly from telecommunications companies, asking for more time. They indicate new IT solutions that would facilitate adoption of the new standard are still in development and won’t likely be available until 2016, putting companies a full year behind an ideal “go live” date with the new accounting to comply with a 2017 effective date. Letters from companies and the IASB’s Accounting Standards Advisory Forum have indicated an extra year would also permit a better quality implementation, giving more time to effectively develop internal controls, processes, and systems.

In addition to recommending the delay, the staff also points out reasons the IASB might choose to stay the course with its 2017 effective date. The original timeline is still lengthy, and companies are allowed to adopt under a modified retrospective approach, which is simpler than a full retrospective adoption. The amendments under consideration will not change the rules, only clarify them, and few stakeholders beyond telecommunications companies have asked for a deferral, the staff says.

Finally, the staff points out: “Changing the effective date at this stage in the implementation process may set a bad precedent. It creates uncertainty for stakeholders if the IASB sets and then changes the effective date.” Such a change should be considered only for “exceptional circumstances,” the staff says.