The FASB and IASB (the “boards”) reached decisions at their February 20 meeting on disclosure requirements, transition, and effective date for the revenue recognition standard. These decisions substantively conclude the boards' redeliberations on this project. The boards’ decisions are tentative and subject to change. Any remaining “sweep” issues will be discussed at future meetings.
What were the key decisions?
The boards reached the following tentative decisions:
- Disaggregation of revenue – The boards retained the requirement to disclose disaggregated revenue and added a requirement to reconcile disaggregated revenue to revenue in the financial statements.
- Reconciliation of contract assets and liabilities – The boards eliminated the requirement to reconcile opening and closing balances of contract assets and liabilities. Entities will instead disclose opening and closing balances and provide a qualitative description of significant changes. Disclosure of the amount of revenue recognized relating to performance obligations satisfied in a prior period (such as from contracts with variable consideration) was added, as was opening and closing balances of trade receivables if not presented elsewhere.
- Remaining performance obligations – An entity will disclose the amount of the transaction price allocated to any remaining performance obligations not subject to significant revenue reversal, and provide a narrative discussion of potential additional revenue in constrained arrangements.
- Contract costs – The boards eliminated the requirement to reconcile the opening and closing balances of contracts costs. An entity will disclose the closing balances of capitalized contract costs and the amount of amortization in the period. An entity must also describe the assumptions used in capitalizing contract acquisition costs.
- Other qualitative disclosures – The other qualitative disclosures proposed in the 2011 exposure draft were retained. Disclosure of how an entity determines the minimum amount of revenue not subject to the variable consideration constraint was added, as was disclosure of any policy elections made as permitted by the standard.
- Interim period disclosures – The boards retained existing interim disclosure requirements, but diverged on additional revenue disclosures for interim reporting periods. The IASB decided that the additional disclosures will be limited to disaggregation of revenue. The FASB decided that interim disclosures should include most of the quantitative disclosures required in annual financial statements, including disaggregated revenue, contract balances, and remaining performance obligations.
Transition and effective date
The boards decided that an entity can either apply the final standard retrospectively or use the following practical expedient to simplify transition:
- Apply the revenue standard to all existing contracts as of the effective date and to contracts entered into subsequently;
- Recognize the cumulative effect of applying the new standard to existing contracts in the opening balance of retained earnings on the effective date; and
- Disclose, for existing and new contracts accounted for under the new revenue standard, the impact of adopting the standard on all affected financial statement line items in the period the standard is adopted.
An entity that uses this practical expedient must disclose this fact in its financial statements.
The revenue standard will be effective for annual reporting periods beginning on or after January 1, 2017. Early application will not be permitted.
Is convergence achieved?
Convergence is expected in the final revenue standard, except for interim disclosure requirements. Other differences might exist if the guidance requires management to refer to other standards before applying the guidance in the revenue standard.
The final standard will affect most entities that apply U.S. GAAP or IFRS. Entities that currently follow industry-specific guidance should expect the greatest impact.
What’s the proposed effective date?
The boards tentatively decided the final standard will be effective for annual reporting periods beginning on or after January 1, 2017.
The boards aim to issue the final standard in the second quarter of 2013.
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