Disclosure Issues Could Cause Small Revenue Guidance Delay

The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving, and complex accounting issues. Expert News & Commentary.

By Steve Burkholder

Aug. 31 — The many thousands of companies preparing to apply far-reaching rules on revenue recognition can expect to see a list of clarifications and small improvements from accounting rulemakers in the fourth quarter.

However, the Financial Accounting Standards Board encountered hurdles Aug. 31 on suggested enhanced disclosures about the existence of partially completed contracts expected to produce future revenue. Resolving the disclosures issue could cause small delays in issuing the new clarifications.

The board's staff plans to do more work on the disclosure topic—important to investors who want a periscope on future cash flows—before the board moves to finalize a long list of relatively minor technical corrections and improvements to the 2014 standard on revenue recognition.

Public companies are required to apply the new standard in January 2018. However, a number of companies have signaled that they would use the option that allows earlier application in 2017, FASB members said at their Aug. 31 meeting.

Trying to Increase Awareness of Proposals

FASB decided to issue the potpourri of planned technical corrections and improvements with a specific focus on revenue recognition. It did so “to increase stakeholders' awareness of the proposals and to expedite improvements” to the rules—Accounting Standards Update 2014-09; Accounting Standards Codification Topic 606.

In the more than two years since it issued the important rules on revenue, FASB has considered guidance—both formal changes to the 2014 rules and less formal readings on topics—in meetings of its Transition Resource Group for Revenue Recognition.

FASB issued three sets of final accounting standards updates embodying guidance starting in March (12 APPR 10, 5/20/16) (12 APPR 08, 4/22/16) ; (12 APPR 06, 3/25/16).Those ASUs on revenue recognition stemmed in large part from the transition group's discussions.

Varied Topics in Corrections, Improvements

The varied topics in the planned next round of guidance for the corrections and improvements document include:

  •  preproduction costs related to long-term supply arrangements, including the related issue of capitalization of molds, dies and other tools;
  •  contract costs and impairment testing;
  •  provision for losses on construction- and production-type contracts;
  •  clarifications that the revenue rules don't cover contracts within the scope of accounting standards on insurance (ASC 944) and casino-style wagering contracts (ASC 924); and
  •  aligning cost capitalization guidance for advisers to public and private investment funds.

Second, Smaller Set of Draft Corrections

Four other items will be addressed in a separate, small-scale set of proposed technical corrections on ASC 606, the revenue standard, FASB decided. That proposal would be subject to a 15-day comment period.

Those four items pertain to loan guarantee fees, advertising costs, refund liability and “contract asset” versus “receivable.”

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Ali Sartipzadeh at asartipzadeh@bna.com

For More Information

A detailed board meeting handout describing the revenue reporting topics discussed Aug. 31 is available at http://src.bna.com/ieK.

An update on the technical corrections effort, with a link to the draft improvements, is posted http://src.bna.com/ieL.

For a general discussion of the new revenue standardd, see 5098, The New Revenue Recognition Standard - Analysis & Application I and 5099, The New Revenue Recognition Standard - Analysis & Application II .

Copyright © 2016 Tax Management Inc. All Rights Reserved.