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Revenue Implementation Questions Expected to Slow Down

As the FASB and IASB move closer to the expected implementation date of their converged revenue recognition standards, they anticipate questions on the standards will decline. The accounting boards welcome this slowdown because it will give companies time to start the implementation process without adjusting to additional amendments, an IASB staff member said.

As the FASB and IASB approach the implementation dates of their sweeping revenue recognition standards, the accounting boards expect questions about the standards to slow down — a development the standard-setters welcome.

Companies need to know the concrete provisions in the standards to prepare themselves for following them, a senior IASB staffer said on July 17, 2015.

Speaking to members of the IASB’s Accounting Standards Advisory Forum (ASAF), IASB technical director Henry Rees said there is a “need for stability” in the process, referring to the activities of the boards’ joint Transition Resource Group (TRG), a special panel convened to field questions about the standards and offer solutions to the FASB and IASB.

“People need to get on with implementation,” Rees said. “And I think we need to be very careful that the process we’re trying to do here with the TRG of supporting the standard so it doesn’t create any uncertainty, and perhaps get in the way or hinder the actual implementation process.”

Rees’s comments were in line with those made by FASB officials earlier in the week. At a meeting of the TRG on July 13, FASB assistant director Cullen Walsh said while the boards did not want to disband the group, they were not planning to schedule meetings for 2016 unless significant questions arose.

“They’re really considering very carefully the desire, if you like, to be helpful to companies and providing the clarifications, but at same time be mindful of the fact that you’re amending a standard that has only been issued a few months ago,” Rees said.

The FASB and IASB published the much-anticipated standards in May 2014 via the FASB’s Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers , and the IASB’s IFRS 15, Revenue from Contracts with Customers . The standards are the result of more than a decade of work and are expected to usher in major changes to the way businesses in several industries calculate their revenue, one of their most important financial performance metrics.

The boards formed the special advisory panel shortly after publishing the largely converged accounting standards. The group of accountants, financial executives, and analysts has met five times and considered a wide variety of questions about the standards.

For most of the questions, the group agreed that no action was necessary, and the standards provided sufficient guidance for financial executives and auditors. The group has suggested several changes to the FASB and IASB, some of which are expected to result in minor amendments to the standards.

In part because of potential changes, the FASB earlier this month voted to give companies an extra year to comply with its standard, with public companies being required to follow it in 2018. The IASB plans to vote on a one-year delay on July 22.

The IASB by the end of July also is expected to release for public comment one proposal that contains all of the international board’s suggested changes to IFRS 15. The IASB proposal will clarify the accounting for identifying individual performance obligations or promises in a contract with a customer, determining if a company is the principal supplier in a customer sale or simply an agent collecting fees, and differentiating between the different types of licenses. The board also plans to propose that the new revenue standard not be applied to completed contracts at the beginning of the earliest period presented, a measure the board hopes will offer transition relief to companies.

The FASB plans to make the same modifications, but it wants to clarify the standard further. It plans to add clarifications about immaterial goods or services, shipping and handling activities, presenting a sales tax, assessing a customer’s ability to pay, and accounting for payments that are not in cash.

The IASB has been less interested in amending the standards given the somewhat greater reliance in IFRS on principles-based accounting than in U.S. GAAP. Companies that follow IFRS tend to be more practiced in applying judgment with accounting standards. Current U.S. GAAP has about 180 pieces of industry-by-industry guidance for companies to calculate revenues, and U.S. companies generally prefer accounting standards that are more “rules based.”

The revenue standards erase the industry-specific revenue guidance in U.S. GAAP and provide a five-step, principles-based process by which businesses must calculate the top line in their income statements.

Yukio Ono, chairman of the Accounting Standards Board of Japan, encouraged the FASB and IASB to stay aligned on such an important standard.

“Many Japanese preparers, especially those from large companies, stress the importance of maintaining convergence between IFRS and U.S. GAAP,” Ono said. “Users also stress that maintenance of convergence is very critical for their analysis because it would help ensure global comparability of financial statements.”

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