Panel Seeks to Clarify How to Shift to Revenue Rules

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By Steve Burkholder

July 13 — The special international panel tasked with helping smooth the shift to major new rules on revenue reporting aims to return to the table in coming months to help clear up some questions about making the transition to the U.S. standard under particular circumstances.

The U.S. side of the joint Transition Resource Group for Revenue Recognition (TRG) expects to study a clearer path on what the term “completed contracts” means.

That definition is relevant when a U.S. company chooses the modified retrospective method—rather than a full retrospective approach—in its shift to the news rules.

Under the modified retrospective method, entities will apply the one-year-old standard on revenue recognition (Accounting Standards Update No. 2014-09) only to contracts that aren't completed as of the first time the rules are applied.

James Kroeker, FASB's vice chairman and co-chairman of the TRG, described the importance of being very clear in the instructions on accounting at transition when the modified look-back method is used. “It's important because of its timeliness so that people can move about transitioning,” Kroeker said at the nearly six-hour meeting of the TRG.

On July 9, FASB formally voted to defer the effective date of the new standard by one year. In May 2014 FASB and the International Accounting Standards Board jointly issued the new, important rules on revenue reporting.

IASB Plans Deferral Vote July 22

IASB plans to vote on a similar deferral proposal July 22 on its version of the standard (IFRS 15), an IASB senior staff accountant said July 13.

FASB's action on deferral means that public companies will have to begin applying the far-reaching standard on revenue on Jan. 1, 2018. Current rules require public companies to begin reporting under the new rules starting in January 2017.

IASB plans to issue in late July several proposed “targeted amendments” to the revenue rules. Those include clarifications of the guidance on licensing and changes to illustrative examples in identifying contracted performance obligations, a FASB staff accountant said.

General Accord on Clarifications

FASB and IASB generally agreed with conclusions drawn by their staff accountants on the lion's share of nine implementation issues discussed at the TRG's July 13 meeting.

Some of those issues that yielded a consensus view will have informal language released in the form of minutes at the meeting.

Members of the TRG spoke of how helpful some of the explanations afforded by staff accountants were in answering practice questions that have arisen.

However, a few issues—such as the U.S.-only transition issue—warrant further study and refining, said TRG members, Kroeker and his co-chair counterpart, Ian Mackintosh, who is IASB's vice chairman.

SEC, PCAOB Staff Offer Views

The presence of James Schnurr, chief accountant of the Securities and Exchange Commission, and Martin Baumann, chief auditor of the Public Company Accounting Oversight Board, signaled the importance of the TRG's work to help ensure a smooth transition to the new rules, as an SEC senior associate chief accountant suggested with regard to Schnurr in New York last month.

Schnurr on July 13 offered some cautionary words about current practice and potential for “abuse situations” with regard to certain credit card transactions treated as receivables under Accounting Standards Codification 310. Such classifications won't necessarily be acceptable to the SEC staff “forever,” he suggested.

On a separate topic, Schnurr also signaled that the SEC staff would accommodate what it views as reasoned judgments in the area of “series” and variable consideration rather that looking at the accounting issue very narrowly.

He spoke of being “heartened” by staff accountants' language in helping convey the revenue standard's effectively providing “permission to step back and say what makes sense here” based on a contract's particular arrangement.

Several members of the TRG, such as Ernst & Young partner Alison Spivey, praised several of the agenda papers prepared for the July 13 meeting for providing helpful clarifications. Spivey spoke positively of staff accountants' explanations of views on measuring progress toward completion of a contract that carries performance obligations.

The issues discussed in detail at the TRG meeting also included restocking fees and related costs, and separately, an accounting approach keyed to what staff accountants called a “portfolio of information” or “portfolio of transactions.”

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

To contact the editor responsible for this story: Ali Sartipzadeh at

The agenda papers on the various topics discussed July 13 at Transition Resource Group meeting are available at A summary of the action at the July 13 TRG meeting is expected to be posted in coming days. 

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