FASB Member Says ‘Wait and See' On Delay in Revenue Rules Effective Date

By Steve Burkholder  

June 5 — The Financial Accounting Standards Board and its international counterpart plan to “take a wait-and-see attitude” in assessing any potential need to delay the 2017 effective date for the new rules on reporting revenue, a FASB member said.

FASB's Lawrence Smith stressed June 5—in his board's joint webcast with the International Accounting Standards Board—that the panels don't have immediate plans to extend the date by which public companies have to begin to apply the generally converged standards. Non-public entities are required to start following the new rules in 2018.

Smith was responding to a question on whether the panels have considered postponing the effective date because of a delay in issuance of the standards.

FASB and IASB issued the important new rules May 28 (10 APPR 525, 6/6/14), but had earlier hoped to release them last October (10 APPR 454, 5/9/14, 9 APPR 857, 10/11/13).

“We anticipated that we would get this question and we really want to wait a little while and let our constituents read the standard and digest it.” Lawrence Smith, FASB member

Question Expected

“We anticipated that we would get this question,” Smith said in the hour-long webcast on the week-old revenue standards, “and we really want to wait a little while and let our constituents read the standard and digest it.”

“At this point in time,” the FASB member continued, “neither board, to my knowledge, has any immediate plans to extend the effective date. But, really, we're going to take a wait-and-see attitude to see the extent to which people understand the standard, et cetera, and potentially address it in the future,” said Smith.

In a conference call with news reporters May 28, IASB Vice Chairman Ian Mackintosh conveyed a similar message. Mackintosh suggested that the boards wouldn't “be looking to change” the Jan. 1, 2017 general effective date “unless something really, really major came up.”

At a May 1 conference at Baruch College, a former top accountant at the Securities and Exchange Commission, Scott Taub, of Financial Reporting Advisors LLC, Chicago, said the boards “have given a lot of time for adoption here.” (10 APPR 446, 5/9/14).

However, Jan Hauser, controller at General Electric Co., speaking on a panel with Taub at the conference, said, “I think we're going to need potentially more time” to implement the rules. “We thought we would have had it out quite a while ago,” said Hauser, who also is GE's chief accounting officer.

Boards Spotlight Less Visible Provisions

In the June 5 webcast, Smith, IASB member Patricia McConnell and two staff accountants described in some detail the key principles and prescriptions of the new standards, FASB's Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the IASB's International Financial Reporting Standard 15.

They also offered highlights of new revenue-related disclosure requirements which rulemakers have been discussing since May 28. As Smith and McConnell suggested, those are aimed at addressing a gap in footnote reporting to better inform users of financial statements about an enterprise's revenue picture, including:

  •   providing information on revenue “in the pipeline” ;
  •   judgments and estimates; and
  •   uncertainty about cash flows. 
  • Smith said current accounting standards fall “woefully short” on such disclosures. “Today there are very few revenue disclosure requirements,” said McConnell, who was a long-time analyst at the defunct Bear Stearns & Co. “That makes it extremely difficult for users to understand an entity's revenues as well as the judgments and estimates made by the entity in recognizing those revenues.”

    In addition, Smith, McConnell and two staff accountants, FASB's Kristin Bauer and IASB's Allison McManus, shone a light on less visible provisions in the new rules. Those have attracted less attention since the standards' May 28 issuance than the language on timing and effect of the new prescriptions.

    The less visible items in ASU No. 2014-09 and IFRS 15 include:

  •  the rules' scope taking in sales or transfers of nonfinancial assets outside of the entity's ordinary activities, such as from a company's sale of its headquarters to a non-customer (new FASB Accounting Standards Codification 610-20);
  •  new principles on incremental costs to obtain a contract and costs to fulfill a contract, which are contained in IFRS 15, the fresh revenue rules, but, in U.S. principles going forward, in a new, separate ASC 340-40; and
  •  newly introduced guidance for contract modifications. 
  • In the webcast, Smith and others also laid out the boards' prescriptions with regard to a point-in-time transfer of a good versus provisions of services that result in satisfaction of a performance obligation over time. The fifth step of the five-step revenue recognition model contains these new rules.

    Bauer referred to the percentage-of-completion model for revenue recognition, which is common in the construction industry. She suggested that the percentage-of-completion template may be appropriate if at least one of the rules' specified criteria for performance of an obligation over time is satisfied.

    If at least one of those criteria are not met, the performance obligation—specified in a contract or customary in the entity's business—would be deemed to be fulfilled at a point in time.

    Those notions are key in the new revenue rules, which hinge on when control of a sold asset, for example, transfers.

    Transition Resource Group to Meet

    In the webcast, McConnell also summarized the planned operation of the joint IASB-FASB transition resource group, members of which were announced June 3 (10 APPR 527, 6/6/14). The group is to hold its first meeting July 18.

    The boards plan for the group to help identify and analyze issues “that apply to common transactions that could potentially create diversity in practice,” she said.

    Because the computer software, telecommunications and real estate sectors are predicted to be most affected by the standards, “we would expect a number of issues to come from these industries,” said McConnell.

    Boards Plan XBRL Proposals

    Bauer summarized work by the boards' staff members on proposed changes to the XBRL taxonomy stemming from the disclosure changes required by the final standards.

    Endorsed by the SEC, filing of financial information under the “extensible business reporting language,” or XBRL, entails the computer-tagging of certain amounts and items in financial statements for an easier drilling down into numbers that make up the financial statements.

    The two boards' “taxonomy teams” also are working on collaborating on an accompanying taxonomy implementation guide.

    The boards expect to issue an exposure draft containing the planned XBRL taxonomy changes and guide—all spurred by the new revenue rules — in the third quarter of this year.


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

    To contact the editor responsible for this story: Laura Tieger-Salisbury at lsalisbury@bna.com

    A recorded version of the June 5 webcast will be available for 90 days at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1175801858807.