New FASB Revenue Guidance Addresses Sales Tax, VAT Issue

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May 9 — Companies can choose to use a new shortcut in treating sales and other similar taxes when they first apply far-reaching rules on revenue recognition under new, narrowly-drawn guidance issued by the Financial Accounting Standards Board.

FASB in its May 9 accounting standards update (ASU 2016-12) addressed the “policy election” of factoring sales, value-added and like-minded taxes into measuring the transaction price.

‘Narrow-scope Improvements, Practical Expedients.'

FASB labels the authoritative advice issued collectively May 9 “narrow-scope improvements and practical expedients” to the 2014 standard, Revenue from Contacts with Customers ( Topic 606; ASU 2014-09). The guidance stems from discussions of accounting standard-setters with their Transition Resource Group for Revenue Recognition.

In the ASU, FASB addressed other topics including:

  •  a change aimed at clarifying the collectibility criterion in step one of the standard's five-step revenue recognition process, on identifying a contract with a customer;
  •  on the sales and similar tax issue, allowing an entity to exclude amounts collected from customers for all sales and other similar taxes from the transaction price;
  •  on noncash consideration, specifying that the measurement date for such consideration is the inception of the contract, plus clarifying how specific guidance on variable consideration is to be applied; and
  •  on contract modifications, providing a practical expedient that permits an entity to reflect the aggregate effect of all changes that occur under specific terms.


Differences Between FASB, IASB Rules

FASB and the International Accounting Standards Board jointly issued the important, generally aligned revenue recognition standards on May 28, 2014 (10 APPR 525, 6/6/14). IASB labels its version of the revenue rules IFRS 15.

The standard on revenue, issued by FASB and its international counterpart in 2014 will be applied by virtually every significant business enterprise around the world, insofar as international and U.S. accounting rules have been adopted. The sweeping standards are expected to have significant financial reporting impacts in the telecom and computer software sectors, as well as in construction and in military and aerospace production (10 APPR 875, 9/26/14).

Effect of Latest Amendments

The new guidance issued May 9 “could create generally minor differences in financial reporting outcomes” between U.S. generally accepted accounting and IFRS, including on the tax issue, FASB states in the minor amendments to the revenue standard.

IFRS 15 doesn't contain the policy election on exclusion of sales and other similar taxes in gauging the price of a revenue-generating transaction, FASB notes in the new guidance.

On the items in FASB's the new limited-scope guidance pertaining to noncash and variable consideration, the IASB's standard, unlike U.S. GAAP, doesn't prescribe the date of measurement.

In its new guidance, FASB stresses that the amendments don't change the core principle of its overarching revenue recognition standard.

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

To contact the editor responsible for this story: Laura Tieger Salisbury at

For More Information

The new, relatively minor amendments to FASB's revenue standards are available at

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