Simplified proposals on warranties and additional guidance on how to
determine when a good or service is transferred over are among the
main amendments to a revised exposure draft on revenue recognition.
The International Accounting Standards Board (IASB) and the US
Financial Accounting Standards Board (FASB) released the redrafted
standard today for public comment until 13 March 2012.
The standard setters said the proposed standard would improve IFRSs
and US GAAP by providing a more robust framework for addressing
revenue recognition issues and removing inconsistencies from existing
requirements.
The standards aim to improve comparability across industries and
capital markets, and provide more useful information in financial
statements through improved disclosure requirements.
PwC global IFRS leader John Hitchins told The Accountant the standard
setters haven’t changed the underlying principles in the original
standard but have addressed specific issues that were raised.
“What this amounts to is they have done a lot of outreach and listen
pretty hard to address the concerns of the original draft; things like
simplifying warranties. It is still a large and complex standard so we
support the fact they are re-exposing it,” he said.
“As standards go this is a blockbuster because it’s very pervasive. It
does need everybody who is remotely affected by it to read it very
carefully while it’s still open for comment.”
The core principle of this revised proposed standard is that an entity
would recognise revenue from contracts with customers when it
transfers promised goods or services to the customer. The amount of
revenue recognised would be the amount of consideration promised by
the customer in exchange for the transferred goods or services.
In particular there is additional guidance on how to determine when a
good or service is transferred over time; simplified proposals on
warranties; simplified proposals on how an entity would determine a
transaction price; and a modified scope of the onerous test to apply
to long-term services.
There is a practical expedient that permits an entity to recognise as
an expense costs of obtaining a contract if one year or less and
exemption from some disclosures for non-public entities that apply US
GAAP.
KPMG’s International Standards Group partner Brian O’Donovan commented:
“The most affected companies could be those with bundled products and
services, or those engaged in construction activities – for example,
the telecoms, software and engineering industries. Under the new
proposals the timing of their revenue recognition could change, but
the exact impact would vary. Some companies would get earlier revenue
recognition, but for others revenue would be delayed.”
If adopted, the proposed standard would replace IAS 18 Revenue, IAS 11
Construction Contracts and related Interpretations. In US GAAP, it
would replace the guidance on revenue recognition in Topic 605 of the
FASB Accounting Standards Codification.
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
determine when a good or service is transferred over are among the
main amendments to a revised exposure draft on revenue recognition.
The International Accounting Standards Board (IASB) and the US
Financial Accounting Standards Board (FASB) released the redrafted
standard today for public comment until 13 March 2012.
The standard setters said the proposed standard would improve IFRSs
and US GAAP by providing a more robust framework for addressing
revenue recognition issues and removing inconsistencies from existing
requirements.
The standards aim to improve comparability across industries and
capital markets, and provide more useful information in financial
statements through improved disclosure requirements.
PwC global IFRS leader John Hitchins told The Accountant the standard
setters haven’t changed the underlying principles in the original
standard but have addressed specific issues that were raised.
“What this amounts to is they have done a lot of outreach and listen
pretty hard to address the concerns of the original draft; things like
simplifying warranties. It is still a large and complex standard so we
support the fact they are re-exposing it,” he said.
“As standards go this is a blockbuster because it’s very pervasive. It
does need everybody who is remotely affected by it to read it very
carefully while it’s still open for comment.”
The core principle of this revised proposed standard is that an entity
would recognise revenue from contracts with customers when it
transfers promised goods or services to the customer. The amount of
revenue recognised would be the amount of consideration promised by
the customer in exchange for the transferred goods or services.
In particular there is additional guidance on how to determine when a
good or service is transferred over time; simplified proposals on
warranties; simplified proposals on how an entity would determine a
transaction price; and a modified scope of the onerous test to apply
to long-term services.
There is a practical expedient that permits an entity to recognise as
an expense costs of obtaining a contract if one year or less and
exemption from some disclosures for non-public entities that apply US
GAAP.
KPMG’s International Standards Group partner Brian O’Donovan commented:
“The most affected companies could be those with bundled products and
services, or those engaged in construction activities – for example,
the telecoms, software and engineering industries. Under the new
proposals the timing of their revenue recognition could change, but
the exact impact would vary. Some companies would get earlier revenue
recognition, but for others revenue would be delayed.”
If adopted, the proposed standard would replace IAS 18 Revenue, IAS 11
Construction Contracts and related Interpretations. In US GAAP, it
would replace the guidance on revenue recognition in Topic 605 of the
FASB Accounting Standards Codification.
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
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