Friday, June 3, 2011

Deadline Gets Closer, but Acceptance of Revenue Recognition Proposal Recedes

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International Accounting Standards Board to converge their high priority projects by their June 30, 2011 goal was always going to be tough, but the barrage of criticism the boards received over their revenue recognition piece of it  just made the effort more difficult. The revenue recognition proposal is seen by the accounting profession as perhaps the single most significant and important standard of the convergence endeavor.

Nearly 1,000 comment letters and a series of roundtable discussions by financial report preparers and users generally derided the effort, for all manner of reasons. Construction companies and their trade groups, along with associated underwriting and auditing firms faulted the draft standard for its The struggles by the Financial Accounting Standards Board and the proposal to have revenue reporting hinge on separating performance obligations that rule makers believe could be identified as distinct parts of a contract.

Many commenters don't like the "probability-weighted" average method of the income a company expects to receive from a customer. Information technology firms contend the proposal fundamentally would misstate the true economic terms of their industry's transactions, and they believe it is too impractical.

The proposal would require revenue recognition retrospectively, which roundtable participants said can affect the amount of reported revenue in prior reporting periods, which would mean years of reported revenue.  That would also require preparers to maintain dual reporting systems for the retrospective period, which would drive significant incremental costs in resources, systems, and audit fees.

It's not back-to-the-drawing-board yet, but it's close.

For BNA's Accounting Policy & Practice Report coverage of this issue, go to:

Construction Sector Leads Criticism of Revenue Proposal 

IT Firms Find Problems with Boards’ Revenue Recognition Draft 

FASB-IASB Full Retrospective Requirement of Revenue Recognition Runs Into Opposition 

By Steven Marcy

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