Joint Submission IASB Revenue from contracts with customers

The Joint Accounting Bodies (JAB) has lodged its submission (PDF) on IASB exposure draft ED/2011/6 Revenue from contracts with customers and its Australian equivalent (PDF) AASB ED 222 of the same name to the respective boards. The ED was to replace ED 198 (IASB ED 2010/6) released in 2010 (see ANT24/10) and like its predecessors, was intended to replace IAS 18 Revenue and IAS 11 Construction Contracts, creating a single revenue recognition standard common to both IFRS and US GAAP.

In the submissions, the JAB consider the amended ED to be an improvement on the original ED, as it addresses some of the issues raised by respondents. There are other issues that remain in the ED, including the excessive disclosure requirements.

Background to the EDs

The Australian Accounting Standards Board (AASB) has issued as ED 222 Revenue from contracts with customers, the International Accounting Standards Board's (IASB) ED 2011/6 of the same name issued by the IASB in conjunction with the US Financial Accounting Standards Board (FASB) in mid November 2011. The ED replaces ED 198 (IASB ED 2010/6) released in 2010 (see ANT24/10) and like its predecessors is intended to replace IAS 18 Revenue and IAS 11 Construction Contracts, creating a single revenue recognition standard common to both IFRS and US GAAP.

The IASB and FASB received over 1000 submissions to their initial ED and in response have revised their proposals sufficiently enough to consider that re-exposure was warranted. The new ED is open for comment to the IASB until 13 March 2012 and to the AASB until 9 February 2012 and members are encouraged to express their views on this important topic to both the IASB and the AASB. Readers may also email their views to the Institute for possible inclusion in the Institute’s submission by 1 February 2012.

While the core revenue recognitions concept remains the same in both the old and re exposed ED (i.e. that an entity recognises revenue from contracts with customers when it transfers the promised goods or services, and measures that revenue based on the amount of consideration promised) the proposals have been refined by:

• Adding guidance on how to determine when a good or service is transferred over time;
• Simplifying the proposals on warranties;
• Simplifying how an entity would determine a transaction price;
• Modifying the scope of the onerous test to apply to long-term services only;
• Adding a practical expedient that permits an entity to recognise as an expense costs of obtaining a contract (if one year or less); and
• Providing exemption from some disclosures for non-public entities that apply US GAAP.

Further information on the project is available in the IASB media release and on the IASB’s Revenue project page. To help stakeholders prepare responses the board has made available a podcast outlining the changes along with a snapshot summary (PDF).

Article last Updated 1 May 2012