The Financial Accounting Standards Board (FASB) has released for public comment a proposal for a new project on Issues Related to the Recognition of Revenues and Liabilities.
In many respects, this is a “back-to-basics” project that will reexamine fundamental concepts. But don’t let the theoretical considerations deter you from reading this proposal. There are at least three important reasons why you should take the time to study the proposal and send your comments to FASB:
- Revenue is usually the largest single item in financial statements, and studies show that revenue recognition is the single largest category of financial statement restatements.
- The literature has grown so complex that even experts make mistakes and so inconsistent even FASB board members sometimes have trouble deciding on the right accounting treatment.
- The objective of the project is to develop a new general standard on revenue recognition. The proposal says this new general standard “could have a significant effect on current practice.”
The due date for comments is March 29, 2002. If you’re planning to comment, you’ll also want to read the letter from Tim Lucas, FASB's director of research and technical activities released on January 28, 2002. The letter outlines the list of factors that the Board considers in making agenda decisions and asks for comments on the priority of the revenue recognition issues in relation to other projects you think should be added to the Board’s agenda.