Revenue Recognition Exposure Draft Exposed
The FASB and IASB released their exposure draft of their proposed revenue recognition standards. From paragraphs IN8 and IN9 of the official document
In summary, the core principle [of revenue recognition] would require an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it receives, or expects to receive, in exchange for those goods or services.
To apply that principle, an entity would:
(a) identify the contract(s) with a customer;
(b) identify the separate performance obligations in the contract;
(c) determine the transaction price;
(d) allocate the transaction price to the separate performance obligations; and
(e) recognize revenue when the entity satisfies each performance obligation.
I haven’t had a chance to look and see if there are many surprises. For now, let me just remind readers of the new terminology under the Accounting Standards Codification (ASC). This document is a Proposed Accounting Standards Update (ASU), and when it is approved, it will substantially modify Topic 605 of the ASC, which covers revenue recognition. But it will also make changes to a host of other Topics — read ‘em and weep!
? 340-20 Other Assets and Deferred Costs—Capitalized Advertising Costs
? 360-20 Property, Plant, and Equipment—Real Estate Sales
? 430-10 Deferred Revenue—Overall
? 470-40 Debt—Product Financing Arrangements
? 605-15 Revenue Recognition—Products
? 605-20 Revenue Recognition—Services
? 605-25 Revenue Recognition—Multiple-Element Arrangements
? 605-28 Revenue Recognition—Milestone Method
? 605-30 Revenue Recognition—Rights to Use
? 605-35 Revenue Recognition—Construction-Type and Production-Type Contracts
? 605-45 Revenue Recognition—Principal Agent Considerations
? 908-605 Airlines—Revenue Recognition
? 910-605 Contractors—Construction—Revenue Recognition
? 912-210 Contractors—Federal Government—Balance Sheet
? 912-275 Contractors—Federal Government—Risks and Uncertainties
? 912-605 Contractors—Federal Government—Revenue Recognition
? 915-605 Development Stage Entities—Revenue Recognition
? 922-430 Entertainment—Cable Television—Deferred Revenue
? 926-430 Entertainment—Films—Deferred Revenue
? 926-605 Entertainment—Films—Revenue Recognition
? 926-845 Entertainment—Films—Nonmonetary Transactions
? 928-430 Entertainment—Music—Deferred Revenue
? 928-605 Entertainment—Music—Revenue Recognition
? 932-605 Extractive Activities—Oil and Gas—Revenue Recognition
? 940-605 Financial Services—Brokers and Dealers—Revenue Recognition
948-605 Financial Services—Mortgage Banking—Revenue Recognition
? 952-340 Franchisors—Other Assets and Deferred Costs
? 952-605 Franchisors—Revenue Recognition
? 952-720 Franchisors—Other Expenses
? 954-430 Health Care Entities—Deferred Revenue
? 970-605 Real Estate—General—Revenue Recognition
? 972-430 Real Estate—Common Interest Realty Associations—Deferred Revenue
? 972-605 Real Estate—Common Interest Realty Associations—Revenue Recognition
? 974-605 Real Estate—Real Estate Investment Trusts—Revenue Recognition
? 976-310 Real Estate—Retail Land—Receivables
? 976-605 Real Estate—Retail Land—Revenue Recognition
? 978-310 Real Estate—Time-Sharing Activities—Receivables
? 978-340 Real Estate—Time-Sharing Activities—Other Assets and Deferred Costs
? 978-605 Real Estate—Time-Sharing Activities—Revenue Recognition
? 980-605 Regulated Operations—Revenue Recognition
? 985-605 Software—Revenue Recognition
Also, keep in mind that if this is passed, no one will ever refer to the particular ASU the way we do SFAS 13 or SFAS 157. Instead, we simply have a revised codification.
Actually, Rob, I’m not sure that your last statement is entirely correct.
I agree that preparers will not cite ASUs in their financial statements or filings because only the Accounting Standards Codification is GAAP. However, as researchers, I imagine it will still be useful at times to refer to ASUs.
For example, the multitude of event studies that will come out after the proposed update to rev rec (let’s call it ASU 2011-XX) is adopted will likely refer to their sample periods as being pre/post ASU 11-XX.
Yes, you are right–I shouldn’t have said “no one.” Researchers will use the ASU number as a way to indicate the event that changed the standard. It might be worth quoting the paragraph that appears in recent approved (not proposed) ASUs:
By the way, the cover page of this proposed ASU says to direct comments to “Technical Director, File Reference No. 1820-100.” So does that mean that we refer to this document as Proposed ASU 1820-100? I wonder what the numbering system is.
Rob,
My understanding is that the file reference number is for internal record keeping. In writing comment letters, this is the number that would be referenced.
However, I would think that for general citation purposes (as in a research paper), it would be more informative to cite the title and subtitle of the proposed ASU.
For example, I would cite the proposed ASU on revenue recognition as follows:
Financial Accounting Standards Board. 2010. Proposed Accounting Standards Update: Revenue Recognition (Topic 605), Revenue from Contracts with Customers. Norwalk, CT.
Backing up a step, how do you cite the ASC in the first place? I’ve tried to find this in some recent papers and it seems most researchers are still citing the old source documents.
Jeremy, I don’t have a definitive answer for this. But here’s what I would recommend.
When citing the online version of the Codification, I would use something like the following, which includes the date on which you accessed the Codification, since it changes continuously:
Financial Accounting Standards Board. Accounting Standards Codification Topic 605, Revenue Recognition. June 29, 2010, http://asc.fasb.org/.
If you were citing the printed version, I would use the following:
Financial Accounting Standards Board. 2009. Accounting Standards Codification Topic 605, Revenue Recognition. Norwalk, CT.
For in-text citation, you can refer to the Codification as precisely as appropriate, all the way down to the paragraph (e.g., FASB ASC 605-10-25-1).
If others have a more definitive answer or useful recommendations, I’d be interested to hear their thoughts.
Jeffrey,
Your answer is consistent with the way I think it should be done. Also, when I review papers, I am expecting the authors to similarly cite from the ASC. So thanks for putting this out there.
Okay, but how does one find the year to put next to FASB in the references?
The codification is just that.. a conglomeration of things. So could be multiple years of standards going into one line or two lines that are being cited.
One can do the cross reference back to the original standard, I guess. but what if it is an APB? you cite them or FASB?
AM I making a mountain out of nothing?