The International Accounting Standards Board
(IASB) and the US Financial Accounting Standards Board (FASB)
have released an exposure draft on a joint standard for
revenue recognition to improve and align the financial reporting of
revenue from contracts with customers and related costs.

This will create a single revenue recognition
standard for IFRS and US GAAP, which would be applied in nearly
every market in the world.

The proposed standard would replace IAS 18
Revenue, IAS 11 Construction Contracts and related interpretations.
In US GAAP, it would supersede most of the guidance on revenue
recognition in Topic 605 of the FASB.  

The core principle of the standard is that an
entity should recognise revenue from contracts with customers when
it transfers goods or services to the customer in the amount of
consideration the entity receives, or expects to receive, from the
customer. 

An improvement

The standard-setters said the standard would
improve current accounting rules by:

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  • Removing inconsistencies in existing requirements;
  • Providing a more robust framework for addressing revenue
    recognition issues;
  • Improving comparability across companies, industries and
    capital markets;
  • Requiring enhanced disclosure; and,
  • Clarifying the accounting for contract costs.

IASB chairman David Tweedie commented: “It is
an important step towards a single global principle-based standard
that would make it absolutely clear when revenue is recognised—and
why.”

FASB chairman Robert Herz described the
release of a draft standard as a key milestone in the IFRS and US
GAAP convergence project.

The exposure draft Revenue from Contracts
with Customers
is open for comment until 22 October 2010
and can be accessed on the standard setters’ websites.