The Financial Accounting Standards Board and the International Accounting Standards Board are considering some changes to their converged revenue recognition standard that could lead to divergence after hearing feedback from the Joint Transition Resource Group that is examining implementation issues.

At a joint meeting last month, the two boards discussed some of the issues that had been raised by the Transition Resource Group, including questions about how to treat licenses and performance obligations. The boards appeared to be aligned on the need to address stakeholder feedback on those two issues, but not on the approach for how to do so.

Whereas FASB has apparently decided to amend the principle related to licenses, the IASB decided to simply clarify it, according to a summary of the boards’ joint meeting on February 18 from PricewaterhouseCoopers. In addition, while FASB plans to make a number of changes to the guidance for determining performance obligations, the IASB will instead explore adding additional examples to illustrate the principle of “distinct in the context of the contract.”

The latest moves may lead to some divergence in the revenue recognition standard, which FASB and the IASB only managed to converge less than a year ago.

“On licenses, the FASB decided to go down a path that was slightly different than the IASB decided to go down, so we would expect to see some potential divergence there, and it will be interesting to see how much,” said Dusty Stallings, a partner in PwC’s Capital Markets Accounting and Advisory Services practice, during an interview last week.

The boards are not vastly far apart in the decisions that they made, but the differences could be significant. “It’s simply that the FASB believes the way they plan to articulate it makes the defining line between whether a license is accounted for over time or at a point in time clearer than perhaps the IASB’s decision would be,” said Stallings. “The IASB believes what they’re adopting is more of a change in the principle that was in the standard and just tries to provide some additional guidance in how to apply that principle. So there is a possibility for some divergence there, depending on how the words are ultimately written.”

The divergence might not be minor either, she added. “The way the FASB is going to articulate it, they’re going to step back and kind of modify the principle on licenses from what was in the standard to say, ‘Look at the underlying nature of the intellectual property itself. Is that intellectual property more symbolic in nature, or is it more functional in nature?’”

She gave the example of a Boston Red Sox-branded item. “If it’s symbolic in nature, there’s a presumption that there are activities that will be done over time that help to keep that symbolic brand important to people, and therefore those symbolic licenses would be accounted for over time,” she said. “A functional license, if it can function today as intended, would be accounted for at a point in time. The IASB didn’t go that far. They simply said, ‘The standard says, consider whether the license gives you a right to use it today or if it just gives you a right to access. We’re going to provide some more words to help you understand when something is a right to access and what types of activities might create a right of access model, as opposed to a point in time model.’ So it’s going to be more than a minor difference. I think when it’s done, it may lead to divergence.”

She noted that both boards have debated licenses extensively in the past, all the way through the original exposure draft process before they released the final standard last May.

“In fact, at one point the IASB was quite strongly in the camp that all licenses should be accounted for at a point in time, while the FASB—while not unanimous by any means—has more people on the board who believed that all licenses should be accounted for over a period of time,” Stallings explained. “And what ended up in the final standard was basically a compromise between the two to say all licenses are not created equal. There are different types of licenses, so perhaps some should be over time and some should be a point in time. They debated it at length.”

Thus, even though the issue seemed to be settled, it wasn’t really settled and was reignited once the Transition Resource Group raised it again.

“There was always a bit of a concern that if they tried to readdress licenses again once the standard was issued, that they might not be able to come to agreement because it was such a difficult process before that,” said Stallings. “When the issue was discussed with the Transition Resource Group, the overwhelming feedback was that the guidance as written was unlikely to provide for comparability and would be very difficult to implement consistently.”

The issue of performance obligations also appears to be one that divides the two boards.

“They did make some decisions also on when a performance obligation is distinct, whether or not it should be accounted for or bundled with other things,” said Stallings. “The FASB plans to rearticulate the principle around when a performance obligation is distinct. That’s something that the IASB didn’t think was necessary. They thought maybe they could just add a little bit to explain the principle a little better, not necessarily to rearticulate it. But both that and the draft license wording, it does seem that they want to get those drafts ready to go as an exposure draft sooner rather than later, and hopefully have those out as an exposure draft by mid-year to have a short, maybe 60- or 90-day comment period, so that they can get those changes incorporated. They didn’t say definitively, but that was one of the things they discussed.” There is no definitive timeline, she added.

FASB is still doing outreach to decide whether to defer the effective date of the revenue recognition standard beyond 2017, as some of its constituents are asking. The IASB, while not doing its own outreach, has said that it would wait to see the outcome of FASB’s outreach, according to Stallings.

“It seems that there’s less pressure for a deferral outside the U.S. than in the U.S.,” she noted. “I think there are a number of issues that are yet to be finalized as it relates to the standard itself, which does lead you to believe that perhaps deferral is likely to happen. I wouldn’t say it’s guaranteed, but clearly there are a number of issues still to be debated by the TRG [Transition Resource Group]. They still then need to be addressed by the board, whether they decide to act or not act. You can see the difficulties or challenges around holding onto a 2017 date if you are still changing the standard, but from an IASB perspective they’re not getting that pressure.”