FASB/IASB Joint Project: Revenue Recognition

Revenue is a crucial number to users of financial statements in assessing a company's performance and prospects. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are jointly working on a project to develop a revenue recognition standard with the goals of clarifying the principles for recognizing revenue and developing a common revenue standard. In June 2010, the Boards issued an initial Exposure Draft (ED) for this project, which was issued by the FASB as a proposed Accounting Standards Update, Revenue Recognition (Topic 605): Revenue from Contracts with Customers. The comment letter period closed in October 2010 and during most of 2011 the Boards evaluated the feedback received as a result of the comment letter process (nearly 1,000 comment letters were received) and redeliberated the conclusions they had reached in the project based on this feedback. Given the extent of the feedback, the Boards issued a revised ED on November 14, 2011, which was issued by the FASB as a proposed Accounting Standards Update, Revenue Recognition (Topic 605): Revenue from Contracts with Customers.

Whitepaper on revised ED
While the core principle of the revised ED is unchanged from that in the initial ED, many other elements of the proposal have changed as a result of these redeliberations. We issued a whitepaper discussing the major provisions included in the revised ED. Among other topics, FASB and IASB Issue Revised Exposure Draft on Revenue Recognition addresses:

  • Identifying the contract with a customer
  • Identifying the separate performance obligations in the contract
  • Determining the transaction price
  • Allocating the transaction price to the separate performance obligations
  • Recognizing revenue when (or as) the entity satisfies a performance obligation

Webcast on revised ED
We conducted a webcast, Revised Revenue Recognition Exposure Draft – What Does It Mean For You?, which covered the approach that should be used to comply with the core principle of the revised ED as well as the revised ED's major provisions.

Handout on revised ED
We prepared a two-page handout, Revised Revenue Recognition Exposure Draft – What Does It Mean For You?, which highlights some of the key changes that would result from the guidance in the revised ED.

Comment letter on the revised exposure draft on revenue recognition
Our comment letter indicates that while we believe the revised ED represents a significant improvement over the original ED, we also believe that further improvements are warranted. Many of the additional improvements we believe should be incorporated into the final standard involve the Boards providing more implementation guidance given the critical role such guidance plays in making the concepts in the revised ED understandable and in achieving consistent application of those concepts. Our letter also discusses other improvements we believe should be incorporated into the final standard.

Summary of decisions reached during redeliberations
For a summary of the decisions reached by the FASB and IASB during their redeliberations of the decisions included in the revised ED, refer to the FASB’s project update page for the revenue recognition project.

Other joint projects
For a synopsis of other joint projects currently being worked on by the FASB and IASB and their status, see our summary, FASB and IASB convergence projects at-a-glance.