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Standard-Setters Facing Different Pressures on Revenue Recognition Effective Date

Like many things when it comes to international accounting convergence, the FASB and IASB are under different pressures on the timing of the new revenue recognition standard. The standard, which was published in May and will go into effect in 2017, ushers in sweeping new guidance for businesses to report the top line in their income statements, and many U.S. companies are asking the standard-setters for more time.

While the FASB has faced a barrage of complaints from U.S. companies concerned that they won’t be able to comply with sweeping new revenue accounting rules by 2017, the IASB has heard no such concerns from its constituents, said IASB vice chairman Ian Mackintosh on December 9, 2014.

Speaking at the AICPA conference on SEC and PCAOB developments in Washington, Mackintosh said the idea of giving businesses extra time to adjust to the new standard is not on the international board’s agenda at this time. Mackintosh did not close the door on the idea, however.

“We’ve had no push for a deferral, so our board, at this stage, is not actively considering it. FASB are in a different position as to how U.S. issuers report,” he said. “We’d like to stay in step with the U.S. but we don’t know what the answer is.”

FASB Chairman Russell Golden, who shared the stage with the IASB vice chairman, acknowledged that the FASB was under different pressure from U.S. companies, but did not make any promises on whether the board would bow to it. His comments also indicated that the FASB would not make a decision on delaying the date until at least early next year.

“What we’re doing is, we’re actually sending board members out to companies to understand what we have done to date, to understand… the differences between implementation questions and the process, where companies are in their current transition process, to understand if we need to have additional” time, Golden said.

Board members would continue to visit companies until early 2015, he said.

The FASB and IASB published largely converged, sweeping new rules for calculating revenue in May, with 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 erase about 180 pieces of individual, industry-specific revenue guidance in U.S. GAAP and come up with a single, principles-based process by which all businesses must calculate the top line in their income statements.

Although public companies do not have to comply with the standard until 2017, U.S. businesses have to start compiling information now under the new rules if they want to present three years of comparable revenue figures when the standard goes live. This transition method, called “restrospective” application, is not required but many U.S. companies expect to follow it because investors will want to make apples-to-apples comparisons of revenue from year to year.

Outside the U.S., regulations do not require three years of data under the new rules, Golden and Mackintosh said.

“That’s one of the reasons in the U.S. we’re receiving more pressure to consider a deferral than that of the international community,” Golden said. “So again, it’s sometimes because our capital markets are different, sometimes because our transactions are different as to why you might have different pressures on changing the words… there’s various legal and regulatory differences as to why, so far, the U.S. has had more pressure.”

The difference in constituent feedback on the timing of the revenue recognition project is illustrative of the many other differences between the FASB and IASB. It is one of the reasons the boards agree that international accounting convergence, in which the FASB and IASB sit down side-by-side to craft global rules, is not a sustainable practice.

The boards held up the revenue recognition project as one of their convergence success stories, but their track record on financial instruments, leases, and insurance contracts is more spotty. In the past year, the standard-setters have shifted their emphasis to producing “comparable” accounting standards as opposed to identical ones.

“In the future, we at the FASB are going to continue to strive to improve accounting to make accounting more comparable around the globe,” Golden said. “We’re going to continue to cooperate and collaborate with the IASB so we can come to solutions that will both improve and make accounting produce comparable information.”

In a sign of what is likely to come in 2015, Golden’s and Mackintosh’s individual speeches focused on their boards’ separate future endeavors. Mackintosh discussed the IASB’s push to have more countries adopt IFRS, while Golden spoke about the U.S. board’s effort to reduce complexity in U.S. GAAP.

“Convergence was not a perfect process but it was a good one and we achieved a great deal,” Mackintosh said. “The similarities between the two sets of standards are bigger than the differences.”

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