The FASB and IASB (the "boards") released an updated exposure draft, Revenue from Contract with Customers, on November 14, 2011 and are requesting comments by March 13, 2012. The boards have asked whether the proposed guidance is clear, and requested feedback specifically on. (1) performance obligations satisfied over time; (2) presentation of the effects of credit risk; (3) recognition of variable consideration; the scope of the onerous performance obligation test; (4) interim disclosures; and (5) transfer of nonfinancial assets that are outside an entity's ordinary activities (for example, sale of PP&E).
The proposed model requires a five-step approach. Management will first identify the contract(s) with the customer and separate performance obligations within the contract(s). Management will then estimate and allocate the transaction price to each separate performance obligation. Revenue is recognized when an entity satisfies its obligations by transferring control of a good or service to a customer.
It is unclear when a final standard will be issued; however, the boards have indicated that the final standard will have an effective date no earlier than 2015. Full retrospective application will be required with the option to apply limited transition reliefs.
This Dataline and the accompanying industry supplements share our analysis of and insight on the proposal.