The Financial Accounting Standards Board (FASB) had hoped to issue a final standard on revenue recognition during the first quarter of this year. However, the standard-setting organization confirmed today that the timetable for releasing the standard has been pushed back slightly.
The standard for revenue recognition is now expected to be issued in the second quarter of 2014, most likely by the end of May.
“In addition to being one of the longest standards we’ve ever issued, the new revenue recognition guidance requires updates to numerous sections of our codification,” FASB spokeswoman Christine Klimek said in an e-mail to AccountingWEB on Tuesday. “The enormous amount of production time and effort required to do this has slightly delayed its issuance.”
The FASB has been working with the International Accounting Standards Board (IASB) for more than a decade on developing a final converged standard on how revenue is recognized in financial statements for companies in all industries under both US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
According to the FASB, the new standard will replace the more than 200 specialized and/or industry-specific revenue recognition requirements under US GAAP and beef up the limited guidance that is currently provided in IFRS, especially in such areas as revenue recognition for multiple-element arrangements.
Under the proposed standard, a five-step model would be used by companies to recognize revenue from customer contracts. Those five steps include:
- Identify contract(s) with a customer.
- Identify the separate performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the separate performance obligations.
- Recognize revenue when the entity satisfies each performance obligation.
So, for example, in a multiple-element arrangement, the new standard would require companies “to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer,” according to the FASB.
Once approved, the final revenue recognition standard will be published as part of the FASB Accounting Standards Codification. The standard will likely go into effect for public companies in 2017 and in 2018 for private companies.
About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.