For most of this decade, the Financial Reporting Issues Conference has been my favorite accounting event of the year.  Taking a Bayesian perspective, I also view it as the most informative:  every year, what I learn changes my beliefs more than any other conference.

I will be writing some posts about the substance of the conference, but for right now I just want to give people the link to the conference website, so you can read the materials for yourself.  The topic, Revenue Recognition, As Applied to Lessors and Insurance Firms, puts an exclamation point on the challenge of the revenue recognition project:  constructing a model that can be applied across industries.  As you read the materials, ask yourself whether revenue recognition standards should be difference for sellers of insurance products and mattresses.  If so, why?

I would encourage you to apply think about revenue recognition standards in terms of the predictive validity framework (a k a ‘Libby Boxes’), as I did in this post:  for each unobservable construct we need to identify an observable proxy variable that can be used to implement the accounting you think is appropriate.  The question then becomes:  why would you want to use industry membership (e.g., “insurance” or “leasing”) as a proxy, instead of directly identifying the features of insurance and leasing companies that make special accounting appropriate.  Is it the fact that insurers are accepting money to bear risk?  If so, why not write standards based on any firm that accepts money to bear risk — and many firms do that in other industries as well.  Is it that accepting money to bear risk is the preponderance of their revenue?  If so, why should that matter?

In a similar fashion, what is the difference between leasing a physical item and licensing the right to use a digital asset?  For that matter, why should leasing be treated differently from a magazine subscription?  What observable variables most directly capture the reason that lessors should account for revenue in a different manner, other than because we want to call their business model by the name “leasing”?

Much more on these topics to come.  Enjoy Thanksgiving, but look for posts even though I am supposed to be on vacation.