Project Updates

Revenue Recognition—Joint Project of the FASB and IASB

Last Updated: November 10, 2009 (Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the FASB and IASB (the Boards). It was prepared by the staff and is for the information and convenience of the Boards’ constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

Project Objective
Due Process Documents
*Decisions Reached at the Last Meeting
*Summary of Decisions Reached to Date 
Next Steps 
*Board/Other Public Meeting Dates 
Related FASB Documents 
Background Information 
Contact Information 

PROJECT OBJECTIVE

The objective is to clarify the principles for recognizing revenue and to create a joint revenue recognition standard for US GAAP and IFRSs that companies can apply consistently across various industries and transactions.

By developing a common standard that clarifies the principles for recognizing revenue, the boards aim to:

  • remove inconsistencies and weaknesses in existing revenue recognition standards and practices
     
  • provide a more robust framework for addressing revenue recognition issues
     
  • simplify the preparation of financial statements by reducing the number of standards to which companies must refer
     
  • improve comparability of revenue across companies and geographical boundaries.

DUE PROCESS DOCUMENTS

On December 19, 2008, the Boards published, for public comment, a Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers.

  • Download the FASB Discussion Paper. Download the IASB Discussion Paper which is the same except for minor differences in spelling, style, and format.
     
  • Read the press release introducing the Discussion Paper.
     
  • Read a snapshot of the Boards’ preliminary views in the Discussion Paper.
     
  • Listen to the FASB’s webcast on the Discussion Paper presented on March 27, 2009.

The Discussion Paper was open for public comment until June 19, 2009. The staff compiled a summary of comment letters on the Discussion Paper for use during the July joint Board meeting, which assisted the Boards in identifying issues to be addressed and further developed.

In July 2009, the Boards considered a summary of comment letters received. The comment letters will be considered further as the Boards further develop the proposed revenue recognition model.

The Boards expect to publish the Exposure Draft in 2010.

*DECISIONS REACHED AT THE LAST MEETING (October 26, 2009) 

Background

At their respective meetings in September 2009, the Boards considered additional guidance in the proposed model to help an entity determine when to recognize revenue. At this joint meeting, the Boards considered additional guidance to help an entity determine how much revenue to recognize.

In their Discussion Paper, the Boards proposed that an entity should allocate the transaction price, on a relative standalone selling price basis, to each performance obligation in the contract. When an entity satisfies a performance obligation, it should recognize revenue in the amount that was allocated to the performance obligation.

Allocating the transaction price

The Boards decided tentatively that:
 

  1. To implement the concepts in the Discussion Paper, an entity should allocate the transaction price to segments of a contract rather than to individual performance obligations. A segment includes one or more performance obligations for which the entity has evidence of a market—that is, evidence that a segment of the contract could be sold separately.
  2. When segmenting a contract, an entity should consider when the promised goods and services are transferred to the customer, the margins for those goods and services, and materiality.
  3. An entity should estimate standalone selling prices if they are not observable, and an entity should maximize the use of observable inputs.
  4. The Exposure Draft should not prescribe or preclude any particular method of estimating a standalone selling price.

When goods and services in a contract segment are transferred at different times (or continuously), an entity must determine how much revenue to recognize as each performance obligation is satisfied. The Boards decided tentatively that:
 

  1. An entity should select a method of measuring performance that best depicts the transfer of goods and services to the customer. Acceptable methods include methods based on units of output, units of input, or the passage of time.
  2. An entity should select one method per segment and apply that method consistently throughout the contract and across segments with similar characteristics in other contracts.

Next steps

In November, the Boards plan to consider issues related to the subsequent measurement of performance obligations and how an entity would apply the proposed model to licensing arrangements.

 
Additional Details