Another delay for revenue recognition standard
Posted 6-29-2011
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced the re-exposure of the revenue recognition revised proposal for a new joint standard for both U.S. GAAP and IFRS. This announcement delays preparations for the revenue recognition changes, and accentuates the importance of these changes to companies, especially in the construction industry.
With this delay, a revised exposure draft is now expected in the third quarter of 2011 with a 120-day comment period. Feedback will then be evaluated and deliberated with a finalized revenue standard expected in third quarter of 2012. Although the effective date is still to be determined, estimates are for 2015 or 2016 with retroactive requirements. In practice, retroactive application requires companies to report all periods presented in their financial statements in accordance with the new standard. As a result, companies need to be prepared to apply the standard at least one reporting period before the effective date.
The proposal is designed to improve revenue reporting by:
- Eliminating inconsistencies and weaknesses in existing standards and practices,
- Improving comparability across companies, industries and capital markets,
- Enhancing disclosure requirements, and
- Clarifying the treatment of contract costs.
The proposal would apply to all contracts with customers except leases, insurance contracts, financial instruments, guarantees and certain nonmonetary exchanges. The proposal also would establish a new core principle: that revenue would be recognized onlyto depict the transfer of goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Currently the biggest potential impact to contractors is not the method of recognizing revenue, but in how a contract will be defined and whether or not there would be multiple performance obligations contained within a single contract.
HLB Tautges Redpath will continue to monitor the revenue recognition project and assist clients with obtaining guidance for implementation and transition to the new rules. Please contact Joel Newby, CPA, CCIFP, at jnewby@hlbtr.com or Gretchen Kelly, CPA, CCIFP at gkelly@hlbtr.com with any questions.