The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) met separately in March to discuss specific U.S. GAAP and IFRS matters related to the proposed revenue recognition standard. The FASB focused on non-public entities and reached decisions on disclosure requirements, transition, and effective date. The FASB also amended its previous decision about effective date for public entities. The IASB decided to permit early application of the revenue standard. The decisions by both boards are tentative and subject to change. Any remaining “sweep” issues will be discussed at future meetings.
The FASB affirmed many of its previous tentative decisions on disclosures for non-public entities. A non-public entity may elect not to provide the quantitative disaggregation disclosures required for a public entity. A non-public entity will instead be required to disclose qualitative information about the nature, amount, timing, and uncertainty of revenue and cash flows. Non-public entities electing not to provide the full disaggregation disclosures will be required to disclose a numeric disaggregation of revenue into the amount of revenue for contracts that are recognized at a point in time and those that are recognized over time.
A non-public entity will be required to disclose the closing balances of contract assets, contract liabilities, and receivables from customers, if not separately presented. A non-public entity may elect to not disclose the following:
Transition and effective date
A non-public entity can either apply the final standard retrospectively or use the practical expedient, consistent with the transition approaches available to public entities1.
The revenue standard will be effective for non-public entities for annual reporting periods beginning after December 15, 2017, and for interim periods in the year thereafter. Early application will be permitted, but no earlier than the effective date for public entities.
The FASB also decided to amend its previous decision about the effective date for public entities. The revenue standard will be effective for public entities for annual reporting periods, and interim periods therein, beginning after December 15, 2016 rather than annual periods beginning on or after January 1, 2017.
The IASB amended its previous decision and agreed to permit early application of the revenue standard. They decided that early application will improve accounting for revenue in the short term, and will eliminate practice issues resulting from the application of current IFRS.
Convergence is expected in the final revenue standard, except for interim disclosure requirements, disclosure requirements for non-public entities, and the effective date for non-public entities. 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.
The FASB decided the final standard will be effective for annual reporting periods beginning after December 15, 2016 for public entities and after December 15, 2017 for non-public entities. The IASB decided the final standard will be effective for the first interim period within annual reporting periods beginning on or after January 1, 2017.
The boards’ timeline indicates the final standard is expected in the second quarter of 2013, although any issues arising in the drafting process could push out that timing.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact members of the Revenue team in the National Professional Services Group (1-973-236-4377).
1For additional discussion of the practical expedient, refer to Dataline 2013-04, Revenue from contracts to customers: Boards finalize redeliberations – A comprehensive look at the new revenue model.