Revenue Recognition on Fasb and Iasb Convergence Process

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

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).

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.

The joint standards board analyzed IAS 18, Revenue, and IAS 11, construction contracts. Trying to go through financial statements that do not use the same standard may be time consuming for auditors, so IASB and FASB deciding to combine those standards and redefine how to record revenue under a new joint standard may be the better option. In 2009 the IASB announced the decision to issue a joint standard with the FASB on revenue recognition. For the past five years, the IASB and the FASB periodically announced updates to the standard previously issued. The businesses and industries that use this revenue recognition standard should constantly watch for updates to existing standards, along with issuance of additional conjoint standards by the FASB and IASB. After thoroughly evaluating existing differences between GAAP and IFRS, recommendations for future joint standards will be discussed.

For readers who are unfamiliar with the topics discussed above, The Financial Accounting Standards Board recently issued a new set of standards governing revenue recognition. The new standards will take effect on

Comparative to the proposed ASU Topic 606, Revenue from Contracts with Customers, this standard sets forth a singular framework of standards applicable to all industries and businesses. The guidelines determined in the ASU were created with the mind to be suitable to users of U.S. GAAP and International Reporting Financial Standards (IFRS), as well as being adaptable to changes in markets and transactions (FASB, ASU 2014-09). Further improvements brought forth by the ASU include reducing the number of requirements to recognize revenue and improved financial statements disclosures, clarifying the nature of revenue being recognized (FASB, ASU 2014-09).

According to the 2011 exposure drafts Snapshot Summary, The boards proposing that these proposed standards help users of financial statements better understand the nature, amount, timing and uncertainty of revenue from contracts with customers. The new standards insist that a company disclose qualitative and quantitative information about: all of its contacts with its customers, any significant changes in judgements in applying the proposed requirements to the chose contracts, and any assets recognised from the costs to obtain or fulfil the contract with the customer.

The national Financial Accounting Standards Board (FASB) and The International Accounting Standards Board (IASB) came together and jointly issued a newer revenue recognition standards. This will change the effects of the current revenue guided under US GAAP and IFRS. It will take not much of the time to be used as the date is set to have effects from 2017. All of the firms had to work under the rules and regulations set. There is enough of the time left to understand and work on the changes. On dated 28th May, 2014 the new revenue standards were issued for contracts with customers. It has the power to give limitations and new rules are to be followed by various industries. It also includes those industries which have their own policies

How should a vendor record consideration given to the customer as an incentive in a revenue-generating activity? (This question has been addressed for product transactions in chapter 4.)

The Financial Accounting Standards Board (FASB) is the body in the U.S. that sets the accounting standards. These standards issued are referred to as the Generally Accepted Accounting Principles. FASB has an Accounting Standards Codification (ASC), which is a source of seeing nongovernmental US GAAP. FASB provides a Codification research system website, which can be utilized by accountants, lawyers, and students as a means to view content, perform research, and submit feedback. The goal of the Codification was to give accurate up-to-date standard-setting activity in one spot while being user-friendly by codifying all US GAAP. According to the FASB official website, “…the Codification is expected to: 1. Reduce the amount of time and effort required to solve an accounting research issue 2. Mitigate the risk of noncompliance through improved usability of the literature 3. Provide accurate information with real-time updates as Accounting Standards Updates are released 4. Assist the FASB with the research and convergence efforts (About the Codification v4.10 https://asc.fasb.org/help&cid=1176163588636).”

“The core principle of the new Standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services.” ("IFRS - IASB And FASB Issue Converged Standard On Revenue Recognition").

The proposed standards mentioned above would affect the current practices in several ways. When adopted, the proposed standard will 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. The following section will explain some of the differences between the current US GAAP standard and the proposed model.

Since 2007, both the Financial Accounting Standards Board (IASB) and the International Accounting Standards Board (IASB) have been collaborating on a unified project pertaining to the creation of a new accounting standard for insurance contracts. Currently, no international accounting standard exists under the International Financial Reporting Standards (IFRS), as they tend to follow the guidance of U.S. Generally Accepted Accounting Principles (GAAP). However, the standards proposed by both boards differ slightly. In June 2013, the FASB issued an Exposure Draft, Proposed Accounting Standards Update: Insurance Contracts (Topic 834) that strayed slightly from the IASB’s Exposure Draft Insurance Contracts also issued in June 2013. Initially, the FASB introduced a model with a scope including not only insurance entities but also noninsurance entities that issued insurance contracts. Nevertheless, the FASB’s goals in the alternation of insurance accounting have diverged further from its initial convergence efforts with the IASB after the FASB voted in a board meeting on February 19, 2014, to narrow the focus of the insurance contracts project to pertaining solely to insurance entities, which is the same scope as current U.S. GAAP. The FASB was pressured by insurance entities, professional accounting organizations, and other financial statement users to reduce the scope of its exposure draft on insurance accounting or to specify which entities would fall under the control of the

Capital markets are becoming more global and the needs for accounting standards on a global level have been the one thing companies have been struggling to understand for years. The International Financial Reporting Standards (IFRS) has the capabilities to provide these standards a level that investors and auditors can better interprets all over the world. Businesses have been questioning if the GAAP is going to be replaced by the IFRS. Many organizations have gotten so content with what the GAAP has offered that transitioning over to the IFRS may be resisted by

The International Accounting Standards Board (IASB) is revising its Conceptual Framework to improve and clarify the ways financial statements are prepared and presented. The process began in 2004 with a preliminary discussions between the US Financial Accounting Standards Board (FASB) and the IASB. Work was suspended in 2010 then revived in late 2012 as an IASB-only project. Work is still ongoing, with a preliminary discussion paper released in 2013 aiming to collect comments to develop an Exposure Draft will be published in early 2015.