Insights

In June of this year, the IASB and FASB issued an exposure draft on revenue recognition. Revenue recognition, along with financial instruments, fair value measurements and the presentation of other comprehensive income has long been considered one of the major hurdles to full convergence.

The goal of this project is to eliminate the inconsistencies and complexities often associated with revenue recognition. Additionally, enhanced disclosure relative to estimates used in determining amounts of revenue recognized in the financial statements would be required.

Sir David Tweedie, IASB Chairman, said the proposed standard “would make it absolutely clear when revenue is recognized and why.”

The most significant changes from the current guidance are: 

1. Revenue would be recognized when an entity satisfies its obligation by transferring the goods or services to the customer. 
2. An entity would be required to identify and report separate performance obligations. 
3. Consideration of the customers’ ability to pay would be required in determining when and how much revenue should be recognized. 
4. Enhanced disclosure about contracts with customers including disaggregated information relative to revenue recognition and remaining performance obligations at year end.

The comment period for this exposure draft ends October 22, 2010. The goal of the boards is a final standard by the second quarter of 2011.

Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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