Simplified proposals on warranties and
additional guidance on how to determine when a good or service is
transferred over are among the main amendments to a revised
exposure draft on revenue recognition.
The International Accounting Standards Board
(IASB) and the US Financial Accounting Standards Board (FASB)
released the redrafted standard today for public comment until 13
The standard setters said the proposed
standard would improve IFRSs and US GAAP by providing a more robust
framework for addressing revenue recognition issues and removing
inconsistencies from existing requirements.
The standards aim to improve comparability
across industries and capital markets, and provide more useful
information in financial statements through improved disclosure
PwC global IFRS leader John Hitchins told
The Accountant the standard setters haven’t changed the
underlying principles in the original standard but have addressed
specific issues that were raised.
“What this amounts to is they have done a lot
of outreach and listen pretty hard to address the concerns of the
original draft; things like simplifying warranties. It is still a
large and complex standard so we support the fact they are
re-exposing it,” he said.
“As standards go this is a blockbuster because
it’s very pervasive. It does need everybody who is remotely
affected by it to read it very carefully while it’s still open for
The core principle of this revised proposed
standard is that an entity would recognise revenue from contracts
with customers when it transfers promised goods or services to the
customer. The amount of revenue recognised would be the
amount of consideration promised by the customer in exchange for
the transferred goods or services.
In particular there is additional guidance on
how to determine when a good or service is transferred over time;
simplified proposals on warranties; simplified proposals on how an
entity would determine a transaction price; and a modified scope of
the onerous test to apply to long-term services.
There is a practical expedient that permits an
entity to recognise as an expense costs of obtaining a contract if
one year or less and exemption from some disclosures for non-public
entities that apply US GAAP.
KPMG’s International Standards Group partner
Brian O’Donovan commented:
“The most affected companies could be those
with bundled products and services, or those engaged in
construction activities – for example, the telecoms, software and
engineering industries. Under the new proposals the timing of their
revenue recognition could change, but the exact impact would vary.
Some companies would get earlier revenue recognition, but for
others revenue would be delayed.”
If adopted, the proposed standard would
replace IAS 18 Revenue, IAS 11 Construction Contracts and related
Interpretations. In US GAAP, it would replace the guidance on
revenue recognition in Topic 605 of the FASB Accounting Standards