FASB Tweaks Revenue Recognition Standard
The Financial Accounting Standards Board has released a new accounting standards update providing “narrow-scope improvements and practical expedients” for the revenue recognition standard that it converged with the International Accounting Standards Board.
The improvements stem from the work of a joint Transition Resource Group that FASB and the IASB established after they released the long-awaited standard in mid-2014. One of the objectives of the group was to inform the standard-setting boards about implementation issues that might arise from the new standard.
Among the amendments are ones that clarify the collectability criteria of a contract with a customer. The objective is to assess whether the contract is valid and represents a substantive transaction on the basis of whether the customer has the ability to pay the promised consideration in exchange for the goods and services that will be transferred to the customer. The amendments add a new criterion to recognize revenue that fails to meet the criteria. It allows an entity to recognize revenue in the amount of consideration received when the entity has transferred control of the goods or services, the entity has stopped transferring goods or services (if applicable) and has no obligation under the contract to transfer additional goods or services, and the consideration from the customer is nonrefundable.
Other amendments relate to the presentation of sales taxes and similar taxes collected from a customer. The amendments permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales taxes and other similar taxes from the transaction price.
There are also amendments for noncash considerations. They specify that the measurement date for a noncash consideration is the contract inception and that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration.