US standard-setter considering revenue recognition delay to reduce uncertainty

Members of the US Financial Accounting Standards Board (FASB) plan to visit various companies to gain insight into potential implementation problems as the board considers whether to delay the effective date of the new, converged revenue recognition standard.

The board’s staff is also researching three potentially challenging accounting issues that have been discussed by the joint FASB/International Accounting Standards Board (IASB) Transition Resource Group.

The standard, published last May, is scheduled to take effect for reporting periods beginning after December 15th 2016 for US public companies or reporting periods beginning on or after January 1st 2017 for companies that use IFRS.

But FASB is considering delaying the effective date because there is uncertainty over particular requirements in the standard. That uncertainty may cause trouble for US-listed companies that are performing full retrospective adoption and will need to begin capturing information by the beginning of 2015.

“The boards need to stand ready to consider how to ensure that there won’t be unnecessary diversity,” FASB Chairman Russell Golden said Tuesday at the American Institute of CPAs Conference on Current SEC and PCAOB Developments in Washington.

But while FASB is actively researching whether there needs to be a deferral, IASB Vice Chairman Ian Mackintosh said at the conference that the IASB has not received feedback from constituents seeking a delay.

Golden said that may be due to the difference in regulation faced by constituents of FASB and the IASB. He said the US Securities and Exchange Commission (SEC) requires three years of comparative financial statements in a retrospective adoption, while many regulators across the world require just two years.

Companies that prepare IFRS financial statements will be able to wait for additional guidance from the boards before implementation and would not need to begin capturing comparative data until the beginning of 2016. Companies that prepare US GAAP financial statements may not be able to wait.

“I think that’s one of the reasons why in the US, we’re receiving more pressure to consider a deferral than that of the international community,” Golden said.

Golden has authorised FASB’s staff to research three issues that have emerged as challenges in discussions by the boards’ joint Transition Resource Group. The research will be considered as FASB decides whether to place the issues on its agenda.

FASB’s staff is researching:

• Licences. Application issues associated with the pattern of revenue recognition of intellectual property transactions.
• Distinct within the context of a contract. Whether guidance related to the determination of certain performance obligations needs to be clarified.
• Principal vs. agent (gross vs. net). Whether further guidance is needed for determining when revenue should be gross versus net of certain types of arrangements.

On Monday at the conference, SEC Chief Accountant James Schnurr said that if additional standard-setting is required, that would be a reason to consider delaying adoption.

“That is one of the factors we’re considering in determining if there needs to be an additional time period in the effective date,” Golden affirmed.

In upcoming visits to companies, Golden said, board members will ask about their implementation questions and whether they have begun their implementation process. If companies haven’t even started, the board will be less inclined to delay the effective date, Golden said.

If companies are working on implementation, have unanswered questions, and are planning to do a full retrospective transition, a delay may be warranted, he said.

Board members will be finished visiting companies by January, and Golden expects the board to consider research on the three challenging issues in the first quarter of 2015.

“A company needs to have a reduced uncertainty about the accounting conclusions before they implement their processes,” Golden said. “So we want to understand that uncertainty.”

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine editorial director.