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Revenue Recognition Standard Slides to Late Spring Release

March 26, 2014

The FASB and IASB now expect to publish their landmark revenue recognition standard later in the second quarter of 2014. FASB officials attribute the drawn-out publication schedule to the large volume of manual revisions that have to be made to the Accounting Standards Codification. Once the standard is published, the accounting boards want to manage the implementation and adoption process to ensure consistent application globally.

The FASB and IASB’s much-watched accounting standard to overhaul how companies calculate the top line in their income statements will be published “in the next couple of months,”¬†FASB Chairman Russell Golden said on March 25, 2014.

Previously, the standard-setters said they expected the revenue recognition standard to be released in April, which was a delay from the boards’ earlier estimate of the first quarter of 2014. In 2013, the boards had said they’d publish the converged standard by the end of the year.

“It’s taking a little longer than we had hoped,”¬†Golden told members of the FASB’s Financial Accounting Advisory Council (FASAC) at a meeting at FASB headquarters in Norwalk, Connecticut. Golden said the standard is finished and is in the final stages of publication, but the FASB has to comb through the many references for industry-specific revenue guidance in the Accounting Standards Codification and manually update the text.

A FASB spokeswoman later said that the standard is expected to be released by the end of the first half of the year.

Because revenue is considered one of the most important metrics by which to measure a company’s health, the development of the standard is being closely watched.

With the release of the standard, the FASB and IASB also plan to form a transition resource group to ensure that the standard is interpreted consistently, FASB Vice Chairman James Kroeker said.

Members of the group, which is expected to be made up of global businesses, auditors, and investors, will be announced around the standard’s publication or shortly afterward. The group is likely to meet in the U.S. and London, and its meetings may be connected via webcast, Kroeker said. The FASB and IASB also are working on a way for the public to submit issues for consideration, most likely through the Internet, he said.

The FASB and IASB are committed to the formation of the transition resource group, Kroeker said.

“Having achieved successfully, over a number of years, a converged standard, it would be very nice to have convergence in the actual application,” he said.

The FASB and IASB’s revenue recognition project is hailed as the standard-setters’ rare convergence success story. The boards in November 2011 released almost identical proposals for public comment and are expected to publish accounting standards for U.S. GAAP and IFRS that contain only minor differences.

The standard is intended to replace the approximately 200 pieces of individual, industry-specific revenue recognition guidance in U.S. GAAP and add more heft to the limited guidance in IFRS. The boards say it will provide a principles-based method for companies to recognize revenue in an amount that reflects what they expect to receive from customers. It’s expected to usher in a sea change in financial reporting for industries like software and telecommunications that for years have relied upon rules-based guidance in U.S. GAAP.

The final standard is expected to outline a five-step process that companies must use to calculate revenue. The accounting boards want companies to identify their customer contracts, separate the different promises in the contracts, determine the transaction price, allocate a price to each promise, and recognize revenue when or as the promised good or service is transferred to the customer, depending on the type of contract.

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