An update on a proposed accounting standard for revenue recognition jointly issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
On June 24, 2010, the FASB (www.practicallaw.com/5-386-5662) and the IASB (www.practicallaw.com/1-386-5635) issued an exposure draft of a proposed new accounting standard on revenue recognition. As described in a joint press release, the proposed new standard is intended to improve and align US and international financial reporting of revenue from contracts with customers and related costs.
The core principle for revenue recognition outlined in the exposure draft is that an entity should recognize revenue from contracts with customers when it transfers goods or services to the customer in an amount that reflects the consideration it receives, or expects to receive, in exchange for those goods or services. The FASB and the IASB stated that the proposed standard would:
Remove inconsistencies in existing revenue recognition standards and practices.
Provide a more robust framework for addressing revenue recognition issues.
Improve comparability across companies, industries and capital markets.
Simplify the preparation of financial statements by reducing the number of requirements.
The proposed revenue recognition standard would apply to both US GAAP (www.practicallaw.com/3-382-3512) and International Financial Reporting Standards (www.practicallaw.com/7-386-3676) (IFRSs). For US GAAP, the standard would supersede most of the guidance on revenue recognition in Topic 605 of the FASB Accounting Standards Codification. For IFRSs, the standard would supersede IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The FASB and IASB are accepting public comments on the exposure draft until October 22, 2010.