The chairman of the Financial Accounting Standards Board said Thursday that the FASB staff expects to issue the long-awaited converged standard on revenue recognition that it has developed with the International Accounting Standards Board this month, calling it “a grand achievement for both boards."
Speaking at Baruch College’s 13th Annual Financial Reporting Conference in New York, FASB chairman Russell Golden noted that all 23 board members at FASB and the IASB have approved the standard. The delay is related to technical issues with the codification of the standards, but FASB is now awaiting final publication.
“The document has been cleared by all 23 board members because this is a joint project, so it’s not just the seven board members of the FASB,” he said. “It also includes all 16 of the IASB. You could probably sympathize with the staff of the FASB and the IASB. We have 23 independent board members. Some of us are more opinionated than others, so the drafting and editorial view has obviously taken a little longer than we had anticipated. But it’s been cleared by all board members, and it’s awaiting final production. The delay has to do with the codification. It’s a manual process, but I’ve been told by the staff that it will be out by the end of this month.”
In addition, FASB has prepared several videos explaining the new standards.
Golden noted that both boards worked through any disagreements and there are only two remaining differences. “One has to do with interim disclosures, and the other has to do with the threshold for collectability, but it is a grand achievement,” said Golden. “I think it’s going to make a lot of improvements throughout the world, so investors can better understand how companies are recognizing revenue.”
Golden acknowledged that one point of contention between FASB and the IASB had been about whether a contract is likely to be collectible. He acknowledged that the threshold for probable collectibility will be lower under International Financial Reporting Standards than under U.S. GAAP.
FASB and the IASB plan to form a Revenue Recognition Joint Transition Resource Group to aid with the transition, bringing together industry experts to answer questions for companies. Golden said he expects the American Institute of CPAs and accounting firms to also provide updated guidance.
“I expect the firms to issue guidance, the books,” he said. “I expect the AICPA—they have a lot of positive guidance by industry related to accounting and auditing—they're going to need to update those books. While we hope is that those are updated by industry, that there isn't uniqueness of one industry to another. This was to take various amounts of industry GAAP and bring it into one principle, with some exceptions, but basically one principle. But we don't want the outcome to be different in this industry or this industry. That's why we're trying to create this resource group.”
Among the industries that are expected to be affected the most are software companies, real estate, asset management and media.
For public companies, the effective date will be for annual reporting periods beginning Jan. 1, 2017 for calendar year-ends beginning with the first quarter. Early adoption is not permitted by FASB, but it is by the IASB. For nonpublic companies, the effective date will be for annual periods beginning Jan. 1, 2018, or Jan. 1, 2017, giving them until 2018.
FASB is also working with the IASB on the other convergence projects, leasing and financial instruments. Golden said he was also participating in the IASB's Accounting Standards Advisory Forum on IFRS standards for rate-regulated activities and the disclosure framework that both boards are developing. He noted that with the disclosure framework, companies will have the opportunity to make disclosures more effective. FASB has been field-testing disclosure framework changes.
Paul Beswick, chief accountant in the Securities and Exchange Commission's Office of the Chief Accountant, said the SEC wants companies to take the time and rethink their disclosures and disclosure effectiveness. “I would just encourage everybody to rethink their disclosures in that context,” he said.
Asked about the future of the convergence effort, Golden said FASB was focused on improving U.S. GAAP, working with others around the world on improving financial reporting around the world and promoting comparability.
Beswick pointed out that there have been many changes at the SEC over the last 18 months, including a new chairman and two new commissioners since August. “This is admittedly a very complicated issue in terms of what the next steps are,” he said. “One of the things that we have certainly said from a staff perspective is that we think FASB does a phenomenal job, and we think they do a great job of protecting U.S. investors and having accounting standards that reflect information that's good for investors in the U.S. There obviously is a lot of discussion at various levels in terms of what's the U.S. going to do? It comes in and out of the G-20, most recently out of the G-20. I think what we've been saying from our perspective, and most importantly from the chair's perspective is it is a priority. I wouldn't read anything into the timing and how long it's taken. There's a lot going on with Dodd-Frank and the JOBS Act. The commission can only handle so many things at one time. There's a steep learning curve. This is a very complicated issue. I think some people don't truly understand when you start peeling back the layers.”