NEWS RELEASE 05/20/02
FASB Adds Revenue Recognition Project to Its AgendaNorwalk, CT, May 20, 2002—In an effort to provide better and more comprehensive guidance as to when companies should record revenues, the Financial Accounting Standards Board (FASB) has added a project on revenue recognition to its agenda.
"Revenue usually is the largest item in financial statements, and revenue recognition issues top the list of reasons for financial reporting restatements. The FASB’s proposed project would address such matters by developing one accounting standard that would apply to a broad range of industries," commented L. Todd Johnson, FASB Senior Project Manager.
As part of its project on revenue recognition, the FASB will seek to eliminate inconsistencies in the existing accounting literature and accepted practices, fill voids in the guidance that have recently emerged and provide further guidance for addressing issues that arise in the future.
The Board decided that, in the interim while the standard is being developed, the Emerging Issues Task Force should continue to provide guidance on issues of revenue recognition based on the existing authoritative literature.
In developing the revenue recognition standard, the Board has decided to reconsider, as necessary, the guidance pertinent to revenue recognition in its Concepts Statements, particularly that in FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.
Because of the interrelationships and interdependencies of the issues to be addressed, the Board decided that the project will be addressed in two parts that will be developed simultaneously. One part will take a "bottom-up" approach that provides an inventory of existing revenue recognition guidance and accepted practices; that inventory will help identify inconsistencies and gaps in the literature that need to be resolved. The other part will take a "top-down" approach that focuses on the conceptual guidance. The process of developing guidance at the concepts level and standards level will be iterative in that the Board will test its tentative conclusions about the conceptual guidance by applying it to specific revenue recognition issues identified in the inventory, which might indicate the need for further improvements in the concepts. The simultaneous pursuit of the two parts will not only facilitate the iterative process but also expedite completion of the project.
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Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.
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