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Feb. 10 — U.S. companies preparing to apply important new rules on revenue recognition should get clarifying guidance on a host of revenue-reporting issues by June 30, according to plans of the Financial Accounting Standards Board.
FASB voted 5-2 Feb. 10 to instruct its staff to write a final draft of an accounting standards update (ASU) embodying “narrow-scope improvements and practical expedients” to the far-reaching 2014 revenue standard—ASU 2014-09 .
The board is seeking a smooth implementation of the revenue standard and to head off misunderstandings.
The planned ASU, to be issued by June 30, deals with a host of issues related to revenue reporting, including:
FASB issued the rules jointly with the International Accounting Standards Board, with IASB's version named IFRS 15. The boards are trying to remain converged as much as possible on the tenets—if not the exact words—of the jointly written standards while responding to questions about first use of the new rules.
Many thousands of commercial enterprises around the world must apply the new, one-stop standards on revenue, a key line in financial statements.
Telecom, technology, aerospace and defense, construction, and media and entertainment are five sectors of many that are expected to be most affected by the advent of the new rules.
Public companies are to apply the standard in January 2018.
At the Feb. 10 meeting, FASB affirmed many of the positions and prescriptions it staked out in the draft ASU on revenue recognition.
In that Sept. 30 exposure draft, the board proposed the improvements and what amount to short cuts in reporting . The latter—labeled “practical expedients”—are aimed at simplifying and facilitating first use of the new rules.
FASB voted to not lower the threshold of collectability of revenue that would have lowered the bar for recognizing revenue. The board voted to keep language in the 2015 proposal having that threshold set at “probable” rather than moving to “more likely than not,” deemed a lower hurdle in the U.S.
FASB and IASB are aligned in their use of “probable” as the criterion for collectability. However, in IFRS 15, the international board states that “probable” means “more likely than not,” or a 50.1 percent probability of revenue from an obligation being collected.
In the U.S., “probable,” if pegged at a percentage or range, is understood in financial reporting circles to be at least 65 percent or in the range of a 70 to 79 percent probability.
FASB on Feb. 10 voted to affirm its proposed practical expedient for contract modifications during a shift to the new standard. Such modifications are common in construction and in aerospace and defense.
That effective shortcut would allow an enterprise “to determine and allocate the transaction price on the basis of all satisfied and unsatisfied performance obligations in a modified contract as of the beginning of the earliest period presented in accordance” with the revenue standard, according to a FASB meeting handout.
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A detailed meeting handout on the issues weighed by FASB Feb. 10 is available at http://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176167858915.
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