Proposed contract-based standards for revenue recognition are attracting some support, but also raising questions, according to a new survey.
The Financial Accounting Standards Board and the International Accounting Standards Board proposed a new revenue recognition model last December for use in U.S. GAAP and International Financial Reporting Standards. The model provides a single revenue recognition principle based on changes in contractual assets and liabilities. FASB is asking for comment letters to be submitted by June 19, 2009.
RevenueRecognition.com, a Web site run by revenue management software vendor Softrax, worked with FASB and the IASB to develop questions for a survey about the proposed standard. The survey of senior finance executives at 515 companies found that 54 percent of them either agreed or strongly agreed that the proposed contract-based approach to revenue recognition would clarify the earning process.
However, 17 percent of the respondents were uncertain about the impact. The key concern was whether contracts could capture ongoing changes in complex business relationships efficiently enough to be the sole basis for revenue accounting.
Two-thirds of the respondents said there would be little or no difference in the timing of their revenue recognition. But in industries such as construction, defense, engineering, services, and software, the impact is seen as potentially significant.
Over 70 percent of the respondents agreed with the boards proposal to use stand-alone pricing as the basis for allocating revenue recognition and that management should be allowed to use estimated prices under some circumstances. However, there were serious concerns about estimated prices. Respondents recommended that standard models be established, even if they have to be industry-specific, and that managers be required to disclose how the price estimates are made.
The boards proposed performance obligation as a single accounting unit to replace the use of deliverables, elements and components. More than 70 percent of the senior finance executives surveyed agreed or strongly agreed that this would help them identify components of a contract more consistently than existing practice.
To view the full report, visit www.revenuerecognition.com.
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