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Revenue Panel to Revisit Two Issues in November

The FASB and IASB’s advisory panel for the revenue recognition standards said it will revisit two issues at its November meeting. The group plans to discuss the accounting for certain types of variable revenues and measuring contracts in existence prior to the revenue standards’ effective date.

Two questions about the FASB and IASB’s landmark revenue standards — accounting for particular types of uncertain revenues and measuring contracts signed prior to the standards’ effective date — will need further discussion and clarification, the boards’ special group dedicated to addressing questions about the standards concluded on July 13, 2015.

The Transition Resource Group (TRG) convened at the FASB’s Norwalk, Connecticut, headquarters and the IASB’s London office, with a videoconference link for the two sessions.The panelists said they would revisit the two issues when the group meets on November 9.

Neither issue requires a full-scale resolution that is crucial to the standards’ proper application, but the group said they merited action.

The standards published 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, say businesses should estimate what the boards call “variable consideration” using either expected value or most likely amount, depending on the type of contract. Variable consideration means that a business does not expect a customer to pay the full transaction price because of coupons, credits, or discounts.Businesses questioned the accounting boards about the proper way to distinguish between the most likely amount they will receive and the expected value if they were using a shortcut in the standards that allows them to look at similar portfolios of contracts to guide the decision.

FASB Chairman Russell Golden summed up the debate as dealing with factors a company would use to assess a revenue stream’s “most likely” versus “expected” value.He and other participants at the meeting said it would be helpful for the FASB and IASB staff to draw up some examples and decide if they needed to take further action.

“We’re not going to be able to answer every iteration, but I think we can significantly narrow [them] to come to a more common understanding,” FASB Vice Chairman James Kroeker said.

A majority of the group said further discussion was necessary, but Russell Hodge, General Electric Co.’s global technical controller, cautioned against producing a solution loaded with details.

“Preparers can figure it out; they can make reasonable estimates.They’ve been doing this for years,” Hodge said. “If there was a way to forget this paper was ever written, that’s what I would propose, because I just think we’re killing ourselves.”Hodge was referring to a memo prepared for the meeting that described the variable consideration issue.

The second issue, regarding transition, applies only to businesses using U.S. GAAP.

Businesses wanted to know how to measure customer contracts that are still open when the new revenue standards go into effect.Unfinished contracts as of the standards’ effective date have to follow the new accounting. Completed contracts would be reported under legacy U.S. GAAP. Businesses wanted more details on when to consider a contract “completed” and thus not subject to a change in accounting method while goods and services are still being delivered and receipts are being collected.

The seven other questions discussed at the meeting would not result in action that could change the standards’ substance.Instead, the FASB and IASB research staffs said they would convey in the meeting minutes the main discussion points and make clear that the standards speak for themselves.

SEC Chief Accountant James Schnurr, who has attended almost all TRG meetings, said that on one issue — loyalty programs in credit card transactions — the SEC accepted the group’s conclusion, but regulators would still be on alert for potential abuses.

ASU No. 2014-09 says instruments covered by Topic 310, Receivables, are excluded from following the revenue standard. But questions cropped up about whether credit card fees associated with loyalty programs that offer airport lounge access, concierge services, or other amenities should be covered by the revenue guidance.

The group confirmed that the fees should continue to be accounted for under Topic 310, but Kroeker made note of Schnurr’s warning that the SEC plans to challenge companies selling significant goods or services and passing them off as perks covered by credit card fees.

“If you put something inside a credit card fee that is clearly unrelated, you’d still need to go through a thought process” in the revenue standard, Kroeker said.

The meeting was the TRG’s fifth gathering since July 2014. The panel of financial executives, auditors, and investors is charged with reviewing questions about the revenue standards, developing solutions, and in some instances suggesting revisions to the FASB and IASB standards. In many cases, the group advised the boards to take no action, although some earlier discussions resulted in both the FASB and IASB proposing amendments.

The revenue standards are the culmination of more than a decade of work between the two accounting boards and considered a key piece of international accounting convergence.The standards erase about 180 pieces of individual, 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.

Because the changes are expected to be so significant, the boards convened the TRG to tackle implementation questions ahead of the effective date. The FASB recently voted to extend the effective date an extra year to 2018, and the IASB is expected to follow suit on July 22.

Unlike some of the group’s earlier meetings, much of the July 13 meeting was devoted to less significant questions from the standards.

The group discussed at length accounting for restocking fees, the recognition of revenue from delivering a commodity such as electricity or natural gas, and the measurement of progress toward satisfaction of a performance obligation.

The group is scheduled to meet again in November, but it does not have any meetings scheduled for 2016. The lack of a schedule for next year does not mean future meetings will not happen, FASB assistant director Cullen Walsh said at the meeting’s outset.

Shortly after he took office in October 2014, Schnurr urged the boards to increase the frequency of TRG meetings and broaden the panel’s agenda.As recently as May, he said at an industry conference that he would oppose any effort to shut down the panel in the near term.

“To be clear, we are not disbanding the TRG,” Walsh said.

A spokeswoman for the IASB confirmed that the international board also agreed that the TRG would continue to meet if businesses and auditors had questions.

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