FASB Likely to Weigh Proposal To Defer New Revenue Rules

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By Steve Burkholder

Jan. 26 — Financial Accounting Standards Board plans to decide early in the second quarter whether to propose a delay in the Jan. 1, 2017 effective date by which companies have to shift to new, far-reaching standards on revenue recognition.

A number of U.S. companies, particularly telecom and technology companies, have sought a deferral of the rules, issued jointly by FASB and the International Accounting Standards Board last spring. The companies have said that applying the new standards would entail burdensome systems and other changes that would require more time.

The schedule for further decision-making on how to make the transition to the new revenue standards was discussed at the Jan. 26 meeting of the FASB-IASB Joint Transition Resource Group for Revenue Recognition.

The TRG, made up of auditors, financial executives and others, has the task of helping bring to the surface revenue reporting questions under the new rules that might be the source of substantial uncertainty on the part of preparers of financial statements and which could lead to unwanted diversity in practice among companies as they report under the new standards.

Licenses, Performance Obligations Up in February 

At the resource group's Jan. 26 meeting, senior staff accountants at FASB and IASB said that the boards plan to discuss at a public meeting in February implementation issues related to the rules' provisions on licenses of intellectual property and identifying performance obligations.

Since last fall, the two boards have been conducting research and outreach—especially to companies—on the topics in order to determine the pervasiveness of potential problems in application.

If questions on licenses and performance obligations warrant it, the boards may consider some form of clarifying guidance or even formal changes to provisions in the rules.

James Schnurr, chief accountant of the Securities and Exchange Commission, suggested late last year that any proposal to revisit the revenue standards' wording would be “a reasonable reason” for a deferral of the rules beyond their 2017 effective date (10 APPR 1042, 11/21/14).

The importance of the Jan. 26 TRG meeting—it third meeting since its formation—was signaled by the presence of Schnurr at the event, which was held at FASB's meeting room.

There, the U.S. board met by videoconference with group members from Europe and elsewhere, and with IASB members who attended. The meeting was co-chaired by the vice chairmen of the two boards: FASB's James Kroeker and IASB's Ian Mackintosh.

The SEC chief accountant offered substantive comment on a few occasions.

Newer Issues Surface

At the end of the Jan. 26 meeting, Kroeker summarized some six hours of discussion leading to further consideration of several newly emerging issues aimed at preventing significant diversity in financial reporting and remedying confusion that might develop among financial statement preparers as they first apply the revenue rules.

A critical mass of TRG members appeared to support more work of the topics, leading to Kroeker's summing up.

The issues that the boards' staffs expect to pursue further, as identified by the FASB vice chairman, are:

•  non-cash consideration, or “determining the measurement date for promised consideration in a form other than cash,” according to a staff-written agenda paper prepared for the meeting;

•  whether the boards could devise a “practical expedient for modifications” of contracts leading to revenue recognition “in the context of adoption,” notwithstanding the clarity of language in the rules on that topic, Kroeker said;

•  collectibility of revenue, with assurance of that collectability being an element required for recognition of revenue, with further consideration focusing on month-to-month service contracts, for example, and review of preliminary reporting outcomes being seen as “draconian”; and

•  consideration payable to a customer.


IASB and FASB have already scheduled three more meetings in 2015 of the Transition Resource Group for Revenue Recognition, a senior staff accountant at the U.S. board said Jan. 26.

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 in Washington at asartipzadeh@bna.com

Agenda papers on the issues discussed at the Transition Resource Group's meeting are available at http://www.ifrs.org/Meetings/Pages/Joint-TRG-for-Revenue-Recognition-January-2015.aspx. A comprehensive “submissions log” of revenue-reporting issues brought to the TRG's attention also is posted at that website address.