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IASB Proposes Clarifications To Revenue Recognition

by Mike Godfrey, Tax-News.com, Washington

04 August 2015


The International Accounting Standards Board (IASB), responsible for International Financial Reporting Standards (IFRS), has published an exposure draft with proposed clarifications and transition reliefs for its new standard on the recognition of revenue from contracts with customers.

The proposed amendments follow discussions at meetings of the Transition Resource Group (TRG), which was set up jointly by the the IASB and the US Financial Accounting Standards Board (FASB) to support companies in implementing the new revenue standard after it was issued in May 2014.

The core principle of the new standard is for companies to recognize revenue in their accounts only when goods and services are transferred to or performed for their customers, and in amounts that reflect the payment to which the company is then entitled in exchange for those goods or services.

That core principle will be achieved by following five steps: identifying the contract(s) with a customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations in the contract; and recognizing revenue when (or as) the entity satisfies each performance obligation.

IASB's exposure draft looks to clarify further how to identify the performance obligations in a contract; how to determine whether a party involved in a transaction is the principal (responsible for providing the goods or services) or the agent (responsible for arranging for the goods or services to be provided to the customer); and how to determine whether a license provides the customer with a right to access or a right to use the entity's intellectual property.

In addition, the IASB proposes two reliefs to smooth the transition to the new revenue standard for modified and completed contracts.

Public consultation on the exposure draft is open for comment until October 28, 2015. The IASB expects to complete its discussions on these issues by the end of this year, after which final amendments to the standard will be issued.

Last month, the IASB and the FASB decided to defer the effective date of the new standard for one year until 2018. Early adoption by companies is allowed, but not before the original effective date (annual periods beginning after December 2016).

TAGS: generally accepted accounting principles (GAAP) | business | accounting | International Accounting Standards Board (IASB) | United States | European Union (EU) | services | Europe

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