Revenue Redeliberations: Some Decisions; More To Come

 
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The IASB and FASB met last month to discuss their joint project on revenue recognition. We outline the key decisions below.

The boards reached tentative decisions on certain topics relating to the constraint on recognizing variable consideration, collectibility, time value of money, and distributor and reseller arrangements.

The staff will conduct further analysis on certain items including aspects of the variable consideration constraint and presentation issues relating to collectibility. Other key issues still to be redeliberated include licences, contract modifications, allocation of transaction price, disclosures and transition.

What were the key decisions?

Constraint on recognizing variable consideration

Variable consideration that is recognized as revenue will be constrained, under the proposed model, to the amount the entity is reasonably assured to be entitled to. This constraint applies to contracts with a variable price and to those contracts with a fixed price where it is uncertain whether the entity will be entitled to that consideration even after the performance obligation is satisfied.

The boards discussed enhancements to the guidance for determining when an entity's experience is predictive of the amount of variable consideration to which it will be entitled. Further discussions are expected at a future meeting after additional outreach.

Collectibility

Initial and subsequent impairments of receivables should be presented in the same financial statement line item. The boards did not conclude, however, on where the impairment should be presented in the income statement. This debate also raised once again the question of whether collectibility should be a threshold for recognizing revenue. The staff will perform further analysis including evaluating the potential consequences of a collectibility threshold, and whether it would be consistent with the core principles of the proposed model. Further discussion is planned for a future meeting.

The boards also considered when revenue should be recognized for contracts with non-recourse, seller-based financing. They agreed to provide additional implementation guidance about whether a contract with a customer exists, based on when the parties may or may not be committed to perform their obligations under the contract.

Time value of money

The boards agreed to retain the proposed guidance that requires adjustment to the transaction price for the effect of time value of money if the...

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