At its meeting in November, the Board began considering one of the two revenue recognition models that have been developed over the past year by the staff and a group of board members (drawn from both the IASB and FASB).
In that model, an entity would recognise the contract asset or liability that arises directly from the rights and obligations in an enforceable contract with a customer. It would measure that contract asset or liability at its current exit price. This is the price that a market participant would pay (or require) to obtain (or assume) the remaining rights and obligations in the contract. The contract asset or liability would be measured this way at inception and subsequently.
At this meeting, the Board considered how changes in the contract asset or liability should be presented in profit or loss. In particular, it considered whether the change in the carrying amount of a contract asset or liability arising from a change in the exit price of an underlying performance obligation should be presented separately from the change in the contract asset or liability arising from satisfying that obligation. It also considered various ways in which those changes could be presented separately.
The Board also considered whether, and if so how, the contract-based model summarised above should be extended in particular circumstances to capture a set of assets and liabilities broader than only those arising directly from the rights and obligations in the contract. In particular, it discussed whether production under contract could give rise to revenue or another component of comprehensive income.
The full description of the model was included in the observer notes for the meeting, available on the Website.
The meeting was educational and no decisions were made.