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Proposed Deferral of Revenue Standard’s Effective Date Is Released

The IASB proposed a one-year deferral of the landmark, global revenue recognition accounting standard. If finalized, companies will have until 2018 to comply with the new standard. The decision follows the lead of the FASB, which issued a similar proposal to delay the effective date in April.

The IASB on May 19, 2015, issued a proposal to delay the effective date of its revenue recognition standard by one year, to January 2018.

The international accounting board wants comments submitted by July 3.

Exposure Draft (ED) No. 2015-2, Effective Date of IFRS 15: Proposed Amendments to IFRS 15 , says companies will have to start applying the standard in fiscal years that start on or after January 1, 2018, instead of in 2017. Companies will still have the option to comply with the standard ahead of the effective date.

The IASB’s proposal to delay the standard follows a similar measure the FASB issued on April 29. Comments on the FASB’s Proposed Accounting Standards Update (ASU) No. 2015-240, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , are due on May 29.

The boards decided to propose letting companies have an extra year to comply with the landmark accounting standards following complaints from companies and auditors that the boards did not give them enough time to implement such a major accounting change.

In May 2014, the IASB published IFRS 15, Revenue From Contracts With Customers , and the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers . Dubbed the “crown jewel” of international accounting convergence by IASB Chairman Hans Hoogervorst, the sweeping standards usher in a single, principles-based method for companies to calculate the top line in their income statements.

The standards get rid of the reams of industry-specific calculation methods in U.S. GAAP and add heft to the scant guidance in IFRS. The standards were scheduled to go into effect in 2017.

In the year since the standards were issued, however, the accounting boards have received numerous requests to give companies more time to upgrade their financial reporting systems and prepare for the accounting changes. The requests grew louder once the FASB and IASB started to consider changes to the standards to answer questions about how to account for revenue from licenses and identify separate promises in a contract with a customer.

The FASB on May 12 released Proposed ASU No. 2015-250, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , to clear up the guidance. The IASB expects to issue a related proposal in June.

“Changing the effective date of a standard shortly after its issuance creates uncertainty for stakeholders and has the potential to set a bad precedent,” the IASB said in ED No. 2015-2. “The effective date is set after careful consideration of information obtained in the exposure process about the time needed to implement the requirements. Accordingly, the IASB would consider doing so only in exceptional circumstances.”

Unlike the FASB’s proposal, the IASB’s exposure draft does not ask if the standard-setter should consider a two-year delay to the effective date. Three FASB members supported such a delay for the U.S. standard, but there was no interest in a longer day among the international board’s members.

“In reaching this decision, the IASB concluded that a one-year deferral is sufficient in terms of providing additional time to implement IFRS 15,”┬áthe proposal says.

The IASB said it plans to review comments on the proposal at its July meeting.

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