The FASB and IASB reached decisions related to their revenue project, including the constraint on variable consideration, collectibility, and licenses.
The FASB and IASB concluded their joint meetings on the revenue project in October and have directed their staffs to draft a final standard. The boards reached a consensus on several key issues that had been the subject of considerable discussion during 2013. The three issues – constraining recognition of revenue from variable consideration, licenses, and collectibility - are interrelated and continued to generate concerns from constituents.
The boards confirmed that an estimate of variable consideration is included in the transaction price if it is “probable” (U.S. GAAP) or “highly probable” (IFRS) that the amount would not result in a significant revenue reversal. The boards also reintroduced an exception for revenue from sales- or usage-based royalties on licenses of intellectual property (IP).
The boards decided to retain the proposed model for distinct licenses, which distinguishes between two types of licenses - one that provides a right to use IP and one that provides access to IP. Criteria will be provided to help determine the accounting based upon the nature of the license.Lastly, the boards introduced a collectibility threshold. An entity will only apply the revenue guidance to contracts when it is “probable” the entity will collect the consideration it will be entitled to in exchange for the goods or services it transfers to the customer.