After over a decade of extensive deliberation, the IASB and FASB officially released their joint revenue recognition standard to be applied under both GAAP and IFRS. The FASB and IASB which they have been in collaboration for a converged revenue recognition principle since 2008. The new revenue recognition standard represents a milestone in the convergence process, as it is the first fully integrated joint standard. The purpose of the new revenue recognition principle is to standardize across the board how companies should recognize revenue recorded in financial statements.
The new standard includes a five-step model, which applies revenue recognized from a contract customer, regardless of industry type and nature of the contract. However, there will be a limited list of exceptions to the standard. The standard will affect the reporting for all entities in all industries unless the exceptions apply. It also increases requirements for extensive footnotes, due to new information pertaining to performance obligations, changes in account balances between periods, and disaggregation, or breakdown, of total revenue.
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Public companies reporting under US GAAP will be required to apply the standard for annual reporting periods beginning after December 15, 2016 and will not be allowed to adopt the new standard earlier than that. US private companies will be required to apply the standard for periods after December 15, 2017. For most entities, adopting the new requirements will be a significant transition process, since the new provision provides enhanced guidance for contract modifications and for arrangements with multiple elements and
Revenue recognition accounting standard ensures the correct revenue is recorded for each period of the income statement, it was previously based on the realization principle - requires revenue to be recognized when the earning process is virtually complete and is certain to collectability. FASB & IASB developed a new revenue recognition standard, Revenue from Contracts with Customers,” on May 28, 2014, ASU No 2014-09. (RRPA Revenue Recognition and Profitability Analysis-1-LO1-5).
SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the
The major benefit of this proposal is that agreement exists that there is more objectivity in measuring and determining changes in assets and liabilities than there is in measuring and determining the completion of the earning process. After taking comment letters on the discussion paper of December 2008 and an initial exposure draft in June of 2010, the boards issued a revision of the proposal in “Proposed Accounting Standards Update (Revised), Revenue Recognition (Topic 605) – Revenue from Contracts with Customers: Revision of Exposure Draft Issued June 24, 2010.” The new document left the basis of the proposal the same and added implementation guidance and a tentative date for adoption. Recognizing revenue under the standard would be a five-step
Fosbre, A. B., Kraft, E. M., & Fosbre, P. B. (2009). THE GLOBALIZATION OF ACCOUNTING STANDARDS: IFRS VERSUS US GAAP. Global Journal Of Business Research (GJBR
As the business environment grows and companies find new ways to expand into their respective - or even new – markets, it is important that reporting standards stay up to date with changes and continue to assist companies in providing their users with useful accounting information. Information is labelled as being useful when it meets the
In November 14, 2011, IASB and FASB issued for public comment a revised draft standard to improve and converge the financial reporting requirements of IFRS and GAAP for revenue and some related cost from contracts with customers.
The documents that comprise GAAP vary in format, completeness, and structure. As a result, financial statement preparers sometimes are not sure whether they have the right GAAP; determining what is authoritative and what is not becomes difficult. In response to these concerns, the FASB developed the Financial Accounting Standards Board Accounting Standards Codification. The FASB’s primary goal in developing the Codification is to provide in one place all the authoritative literature related to a particular topic. Professional accountants pay for access to the FASB. The OU Accounting Department has paid for academic access to the FASB Codification. Our Login information is:
The revenue recognition framework had significant differences under The Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS) provisions. The transformation of revenue recognition was necessary to provide the integrity to financial statements. Moreover, new revenue recognition standards should be applicable to all businesses (p50 A New World of Revenue Recognition).
The Codification’s goal is to clarify the company of thousands of U.S. authoritative accounting announcements published by diverse standard-setters. Therefore, to accomplish this objective, the FASB sponsored a project to incorporate and typically adapt all related accounting publication announced by the standard-setters of the U.S. in conjunction with those of the FASB, the Emerging Issues Task Force (EITF) and the American Institute of Certified Public Accountants
The Company is planning to adopt International Financial Reporting Standards (IFRS) in the near future and should be made aware of the International Accounting Standards Board’s (IASB) relevant accounting guidelines. While FASB has extensive revenue recognition guidelines, IASB only has one, IAS 18. IASB’s revenue recognition guideline for the sales of goods [IAS 18.14] states that revenue
Due to the highly-detailed rules implemented by FASB in the area of revenue recognition, many transactions that are very similar often are not the same between different industries, resulting in multiple accounting methods for different industries. FASB has explained
during the remainder of the contract year. See the example provided in Appendix A for an
Collectability of revenues must be explicitly assessed in a contract before applying the revenue recognition model. An entity must take into account the credit risks and probability of revenue collection as the amount of consideration for the transfer of goods or services based on the customer’s capacity and intention to make due payments. This is one essential difference from the previous standards (Wilson and Sobolewski).
With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of
Although the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) have a lot of similar guidelines and expectations, they also differ in many ways. The IFRS employs more of a “principles based” accounting standards whereas GAAP utilizes more of a “rules based” approach. Even though there are differences between terminology, revenue recognition, gains and/or losses, and statement presentation, both standards do follow the same conceptual guidelines. With the Sarbanes-Oxley Act (SOX) of 2002, the standards expected of foreign countries are significantly less than those that reside as publically