Revised Proposal on Revenue Recognition


Nov. 14, 2011

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) today announced the publication of a revised accounting standard resulting from their joint project to improve and converge financial reporting requirements for revenue recognition. The FASB's revised proposed Accounting Standards Update (ASU), "Revenue Recognition (Topic 605): Revenue from Contracts with Customers," incorporates various changes made in response to feedback received on the original exposure draft issued in June 2010. The boards had previously announced that the revised proposal would be re-exposed because of the importance of the reporting of revenue to all entities and the desire to avoid unintended consequences arising from the final standard.

The revisions do not change the core principle of the original proposal: that an entity would recognize revenue from contracts with customers when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The main changes from the 2010 exposure draft include:

  • Amending the principle for identifying separate performance obligations in a contract;
  • Simplifying the measurement of the transaction price (the effects of customer credit risk would not be considered);
  • Adding criteria to determine when a performance obligation is satisfied over time and when revenue may be recognized over time;
  • Aligning more closely the accounting for product warranties with the existing requirements;
  • Limiting the scope of the onerous test to apply to long-term services only;
  • Adding a practical expedient that permits, in some cases, recognizing as an expense the costs of obtaining a contract; and
  • Providing exemptions from some disclosures for nonpublic entities.

The boards' current expectation is that the final standard, when approved, would not be effective earlier than for annual reporting periods beginning on or after Jan. 1, 2015. The FASB's proposal would not permit early implementation, while the IASB would allow early implementation.

A podcast of FASB board member Russ Golden providing an overview of the revised exposure draft has also been issued. Comments on the proposal are due March 13, 2012.

For more information, please contact Ed Grossman at 863.603.4814 or