State Board Report
Following years of discussion, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced on May 28 their converged standard on the recognition of revenue from contracts with customers. The previous requirements for International Financial Reporting Standards (IFRS) and for U.S. Generally Accepted Accounting Principles (GAAP) often resulted in different accounting for transactions that were economically similar. The new standard’s core principle is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which the company expects to be entitled in exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multipleelement arrangements. A joint research Transition Resource Group has been set up to aid those moving to the new standard, which will be contained in the FASB Accounting and Standards Codification as a new Topic 606, Revenue from Contracts with Customers, and the IASB is issuing IFRS 15, Revenues from Contracts with Customers.
“The issuance of this standard is a major step, but it is not the end of the process,” commented FASB Chairman Russell Golden. “Through the transition resource group and a robust implementation period, the FASB and the IASB will work to ensure that reporting organizations are able to make a smooth transition to the new requirements by 2017.” An archived one-hour webcast of a high-level overview of the new guidance, originally presented on June 5, will be available on ifrs.org and fasb.org. The webcast covers the background of the project, expected improvements, description of the five-step model for recognizing revenue, discussion of the Transition Resource Group and questions and answers.
While the IASB and FASB achieved their goal of reaching the same conclusion on all requirements for accounting for revenue from contracts with customers, there remain some small differences in how the two handle: collectability threshold, interim disclosure requirements, early application and effective date, impairment loss reversal and nonpublic entity requirements. Companies using IFRSA will have to apply the revenue standard for reporting periods beginning on or after January 1, 2017 and those using U.S. GAAP will be required to apply it for annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. U.S. nonpublic companies and organizations have an extra year to apply the standard, beginning with annual reporting periods after December 15, 2017 and interim and annual reporting periods thereafter.
In total, the IASB and FASB had received more than 1,500 comment letters in response to their work over 12 years.
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