Revenue Recognition - Is the FASB Listening?


By Joe Bruce

Since issuing its exposure draft on revenue recognition in June 2010, the Financial Accounting Standards Board (FASB) has been bombarded with comment letters challenging the practicality, function and form of its highly scrutinized accounting guidance. The FASB received 972 comment letters in total, an estimated one-third of those from the construction industry, including letters from the American Institute of CPAs’(AICPA) Financial Reporting Executive Committee (FinREC) and the AICPA’s Private Companies Practice Section (PCPS).
In its December 2010 comment letter to the FASB, the FinREC questioned the exposure draft’s ability to be operational, noting that certain definitions were too imprecise, that practical limitations existed within the guidance that would potentially lead to inconsistent applications and that the proposal was inconsistent with methodologies proposed in other exposure drafts and FASB projects. The letter further encouraged the FASB to work with constituents across all industries and consider the cost-benefit implications of certain principles within the standard.
The January 2011 comment letter from the PCPS was equally direct, addressing “when the continuous transfer of goods and services has occurred, particularly for the construction industry,” “contract costs” and “nonrefundable upfront fees.” Additionally, the PCPS believes that the proposed requirements addressing increased contract segregation in the construction industry, probability-weighted approach to determining consideration expected to be received, disclosure of reconciliation of contract balances, among other requirements, should not be adopted for nonpublic entities.
On February 16 and 17, the FASB’s joint board meetings with the International Accounting Standards Board (IASB) continued deliberations on the revenue recognition exposure draft, addressing performance obligations, revenue recognition for services, combining contracts and contract modifications, among other topics. Although it appears that the joint board may take into consideration certain comments relative to performance obligations and combining contracts, determination of transaction price, allocation of the transaction price, contract fulfillment costs and measurement of progress toward complete satisfaction of a performance obligation remain topics for future board discussion. The joint board expects to issue the final accounting standards update in the second quarter of 2011.
The comment letters received by the FASB, along with the exposure draft and the minutes from the joint board meetings, can be found on the FASB website. (link below)


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