Revenue Recognition on Fasb and Iasb Convergence Process

The boards proposed a standard by which revenue would be recognized entirely based on the firm’s contract with the customer. Any remaining rights or obligations in the contract would give rise to net contract assets or net contract liabilities. Under the proposal, revenue would be recognized based on the changes in rights and obligations under a contract entered into with a customer. Rights (assets) arise from a customer’s promise of cash or other compensation while obligations (liabilities) arise from the firm’s promise to transfer assets to the customer. Revenue is recognized whenever there is an increase in contractual assets or a decrease in contractual liabilities or a combination of both. Remaining rights under the contract are measured, the balance of which will create a net contract asset or a net contract liability.

SAB 104 lays down the following conditions that should all be fulfilled to enable revenue recognition in cases on non-delivery of goods: (1) The risks of ownership need to have been transferred to the purchasers, (2) The customers have made commitments, preferably written, to procure the goods, (3) The purchasers call for the ‘bill and hold’ transactions, (4) The buyers should be

The new standard includes a five-step model, which applies revenue recognized from a contract customer, regardless of industry type and nature of the contract. However, there will be a limited list of exceptions to the standard. The standard will affect the reporting for all entities in all industries unless the exceptions apply. It also increases requirements for extensive footnotes, due to new information pertaining to performance obligations, changes in account balances between periods, and disaggregation, or breakdown, of total revenue.

For readers who are unfamiliar with the topics discussed above, The Financial Accounting Standards Board recently issued a new set of standards governing revenue recognition. The new standards will take effect on

According to the 2011 exposure drafts Snapshot Summary, The boards proposing that these proposed standards help users of financial statements better understand the nature, amount, timing and uncertainty of revenue from contracts with customers. The new standards insist that a company disclose qualitative and quantitative information about: all of its contacts with its customers, any significant changes in judgements in applying the proposed requirements to the chose contracts, and any assets recognised from the costs to obtain or fulfil the contract with the customer.

Extant revenue recognition guidance lacks consistency under U.S. GAAP and IFRS, and fails to address certain types of arrangements. The new guideline reduced inconsistencies, improved comparability, and eliminated gaps. The new standard will significantly affect the current revenue recognition practices of many companies. The new guideline significantly enhanced comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets compare to extant GAAP and IFRS principle. Since the new guidance is principles-based, it can be applied to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Also, the guidance also reduced the number of requirements to which an entity must consider in recognizing revenue, which resulted in less complexity. The guidance helped better understand the nature, amount, timing, and uncertainty of revenue. All entities, including nonpublic entities (they are not included before), could be applied to the new guideline. Some main points are as follow:

How should a vendor record consideration given to the customer as an incentive in a revenue-generating activity? (This question has been addressed for product transactions in chapter 4.)

The national Financial Accounting Standards Board (FASB) and The International Accounting Standards Board (IASB) came together and jointly issued a newer revenue recognition standards. This will change the effects of the current revenue guided under US GAAP and IFRS. It will take not much of the time to be used as the date is set to have effects from 2017. All of the firms had to work under the rules and regulations set. There is enough of the time left to understand and work on the changes. On dated 28th May, 2014 the new revenue standards were issued for contracts with customers. It has the power to give limitations and new rules are to be followed by various industries. It also includes those industries which have their own policies

One of the changes involves the criteria for what is considered the delivery of a product or the performance of a service. This is one of the four conditions needed to be able to recognize revenue under the current model. The condition currently states that revenue should not be recognized until the seller has substantially accomplished what it must do pursuant to the terms of the arrangement where substantial accomplishment of performance usually occurs upon delivery of good(s) or performance of service(s). Risks and rewards of ownership must also pass upon delivery or performance in order for revenue to be recognized. The proposed model considers the delivery of goods or the performance of services to be fulfilled once the control of the contractually promised goods or services has transferred to the customer and that revenue may be recognized. This delivery may occur at a point in time or over time. Indicators of the transfer of control include: right to payment, passage of legal title, physical possession, significant

“The core principle of the new Standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services.” ("IFRS - IASB And FASB Issue Converged Standard On Revenue Recognition").

Since 2007, both the Financial Accounting Standards Board (IASB) and the International Accounting Standards Board (IASB) have been collaborating on a unified project pertaining to the creation of a new accounting standard for insurance contracts. Currently, no international accounting standard exists under the International Financial Reporting Standards (IFRS), as they tend to follow the guidance of U.S. Generally Accepted Accounting Principles (GAAP). However, the standards proposed by both boards differ slightly. In June 2013, the FASB issued an Exposure Draft, Proposed Accounting Standards Update: Insurance Contracts (Topic 834) that strayed slightly from the IASB’s Exposure Draft Insurance Contracts also issued in June 2013. Initially, the FASB introduced a model with a scope including not only insurance entities but also noninsurance entities that issued insurance contracts. Nevertheless, the FASB’s goals in the alternation of insurance accounting have diverged further from its initial convergence efforts with the IASB after the FASB voted in a board meeting on February 19, 2014, to narrow the focus of the insurance contracts project to pertaining solely to insurance entities, which is the same scope as current U.S. GAAP. The FASB was pressured by insurance entities, professional accounting organizations, and other financial statement users to reduce the scope of its exposure draft on insurance accounting or to specify which entities would fall under the control of the

For both main and supporting principles, an organization needs to state how they apply those standards. In view of the Code prerequisites, an organization need to state whether they follow the procurement or not and give along the illustration which is called

The Financial Accounting Standards Board (FASB) is the body in the U.S. that sets the accounting standards. These standards issued are referred to as the Generally Accepted Accounting Principles. FASB has an Accounting Standards Codification (ASC), which is a source of seeing nongovernmental US GAAP. FASB provides a Codification research system website, which can be utilized by accountants, lawyers, and students as a means to view content, perform research, and submit feedback. The goal of the Codification was to give accurate up-to-date standard-setting activity in one spot while being user-friendly by codifying all US GAAP. According to the FASB official website, “…the Codification is expected to: 1. Reduce the amount of time and effort required to solve an accounting research issue 2. Mitigate the risk of noncompliance through improved usability of the literature 3. Provide accurate information with real-time updates as Accounting Standards Updates are released 4. Assist the FASB with the research and convergence efforts (About the Codification v4.10 https://asc.fasb.org/help&cid=1176163588636).”

The International Accounting Standards Board (IASB) is revising its Conceptual Framework to improve and clarify the ways financial statements are prepared and presented. The process began in 2004 with a preliminary discussions between the US Financial Accounting Standards Board (FASB) and the IASB. Work was suspended in 2010 then revived in late 2012 as an IASB-only project. Work is still ongoing, with a preliminary discussion paper released in 2013 aiming to collect comments to develop an Exposure Draft will be published in early 2015.

Capital markets are becoming more global and the needs for accounting standards on a global level have been the one thing companies have been struggling to understand for years. The International Financial Reporting Standards (IFRS) has the capabilities to provide these standards a level that investors and auditors can better interprets all over the world. Businesses have been questioning if the GAAP is going to be replaced by the IFRS. Many organizations have gotten so content with what the GAAP has offered that transitioning over to the IFRS may be resisted by