The International Accounting Standards Board has floated a few ideas to help clarify the new revenue recognition standard, and is asking for public comment on the proposals.
The exposure draft, published July 30, tackles issues such as how to identify performance obligations in a contract, how to determine whether a party involved in a transaction qualifies as “the principal” or “the agent,” and how to determine whether a license gives your customer access to your intellectual property.
All three questions are prime examples of the conceptual shift in the new standard: away from bright-line tests for recognizing revenue, and toward a more principles-based approach that recognizes revenue based on the fulfillment of “performance obligations.” That idea puts much more focus on contracts with customers, and what those contracts promise at various points along a transaction’s lifecycle.
IASB is working in tandem with the Financial Accounting Standards Board in the United States, to ensure that both standards (under International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles) keep moving in the same converged direction. FASB is spending this summer and fall issuing similar pronouncements to clarify various issues.
The exposure draft is open for comments until Oct. 28. IASB expects to complete its deliberations on these specific issues by the end of this year, and the implementation for all companies to adopt the new standard (under GAAP or IFRS) is now January 2018.