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IASB meeting summaries and observer notes


 IASB December 2012


 

The IASB and the FASB met to continue their joint redeliberations on the revised Exposure Draft, Revenue from Contracts with Customers (the 2011 ED). They discussed the following topics:

  1. Allocating the transaction price
  2. Contract costs
  3. Effect of the revenue recognition model on some bundled arrangements
  4. Constraining the cumulative amount of revenue recognised—licences.

Allocating the transaction price

The boards discussed possible refinements and clarifications to the proposals in the 2011 ED for allocating the transaction price to separate performance obligations (ie Step 4 of the revenue model).

The boards tentatively decided to retain the residual approach in paragraph 73(c) of the 2011 ED as an appropriate technique for estimating the standalone selling price of a good or service if that standalone selling price is highly variable or uncertain. The boards also clarified that the residual approach may be used in contracts in which there are two or more goods or services that have highly variable or uncertain standalone selling prices, if at least one of the other goods or services in the contract has a standalone selling price that is not highly variable or uncertain. When there are two or more goods or services with highly variable or uncertain standalone selling prices, the boards clarified that an entity could use a combination of techniques to estimate their standalone selling prices. That is, an entity could:

  1. first apply the residual approach to estimate the aggregate of the standalone selling prices for all of the goods or services with highly variable or uncertain standalone selling prices; and
  2. then use another technique to estimate the individual standalone selling prices relative to the aggregate standalone selling price estimated in (a) above.

The boards also tentatively decided to retain the criteria in paragraph 75 of the 2011 ED for determining when an entity can allocate a discount to one (or some) performance obligation(s) in the contract, and the criteria in paragraph 76 of the 2011 ED for determining when an entity can allocate contingent consideration to distinct goods or services. The boards also clarified that:

  1. an entity should apply paragraph 75 (ie allocation of a discount) before using a residual approach to estimate a standalone selling price for a good or service with a highly variable or uncertain standalone selling price; and
  2. in accordance with paragraph 76 (ie allocation of contingent consideration), an entity can allocate contingent consideration to more than one distinct good or service in the contract.

All members of the IASB and FASB agreed with these decisions.

Contract costs

The boards tentatively decided to retain the proposal in the 2011 ED that an entity should recognise as an asset the incremental costs of obtaining a contract with the customer if the entity expects to recover those costs. The boards also tentatively decided to retain the practical expedient that permits an entity to recognise those costs as an expense when incurred, if the amortisation period of the asset that the entity would have otherwise recognised is one year or less.

Ten IASB members and five FASB members agreed with this decision.

Effect of the Revenue Recognition model on some bundled arrangements

The boards discussed possible amendments to the proposals in the 2011 ED for (a) allocating the transaction price and (b) accounting for costs of obtaining a contract in bundled arrangements in which an entity promises to transfer services to the customer together with a distinct good that relates to the provision of those services (such bundled arrangements are common to the telecommunications and satellite television industries). The boards tentatively decided to retain the proposals in the 2011 ED and not make any amendments specifically for these bundled arrangements (in particular, not to amend the proposals in the 2011 ED for (a) allocating the transaction price, subject to the clarifications noted above, and (b) accounting for the costs of obtaining a contract).

Twelve IASB members and all FASB members agreed with this decision.

The boards also tentatively decided to clarify that in the Revenue Standard an entity could apply the proposals in the 2011 ED to these bundled arrangements using the portfolio approach described in paragraph 6 of the 2011 ED. That is an entity may apply the principles in the 2011 ED to a portfolio of contracts with similar characteristics, if the entity reasonably expects that the result of doing so would not materially differ from the result of applying the proposals to each of the entity's contracts or performance obligations.

Fourteen IASB members and all FASB members agreed with this decision.

Constraining the cumulative amount of revenue recognised—licences

The boards discussed paragraph 85 of the 2011 ED which constrains the amount of revenue that can be recognised for licences of intellectual property when the consideration varies on the basis of the customer's subsequent sales of a good or service (for example, a sales-based royalty). In those cases, notwithstanding the requirements in paragraphs 81–83 of the 2011 ED that constrains the cumulative amount of revenue recognised, paragraph 85 of the 2011 ED specifies that an entity should not recognise revenue until the customer's subsequent sales occur.

The boards tentatively decided to delete paragraph 85 of the 2011 ED and instead, for all licences of intellectual property, rely on the general principles of the constraint on revenue recognised in paragraphs 81–83 of the 2011 ED (as revised by the boards' tentative decisions in November 2012). The boards also tentatively decided to:

  1. refine the indicator in paragraph 82(a) of the 2011 ED, which describes some factors outside an entity's influence that may require an entity to constrain the cumulative amount of revenue recognised, to include the actions of third parties (for example, the customer's subsequent sales); and
  2. explain that when an entity applies the general principles of the constraint on revenue recognised in paragraphs 81–83 of the 2011 ED (as revised by the boards' tentative decisions in November 2012) and is required to recognise a minimum amount of revenue based on its estimate of the amount of consideration to which it expects to entitled, that minimum amount may, in some cases, be zero.

Fourteen IASB members and all FASB members agreed with these decisions.

Next steps

The boards have completed their substantive redeliberations of the recognition and measurement principles in the 2011 ED. They will redeliberate the remaining topics, including scope, disclosure and transition, in 2013.


 

Date: 12/14/2012