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IASB meeting summaries and observer notes


 IASB / FASB February 2013


 

(IASB education session)

 On 19 February 2013, the IASB held an education session on Revenue Recognition to discuss disclosure, transition, effective date and early adoption. No decisions were made.

(IASB decision making session, jointly with FASB)

The IASB and the FASB met on 20 February 2013 to continue their joint redeliberations on the revised Exposure Draft, Revenue from Contracts with Customers (‘the 2011 ED’). The boards discussed the following topics:

  1. disclosures
    1. Disaggregation of revenue (paragraphs 114–115 of the 2011 ED)
    2. Reconciliation of contract balances (paragraph 117 of the 2011 ED);
    3. Analysis of remaining performance obligations (paragraphs 119–121 of the 2011 ED); iv.Assets recognised from the costs to obtain or fulfil a contract with a customer (paragraphs 128–129 of the 2011 ED);
    4. Onerous performance obligations (paragraphs 122–123 of the 2011 ED);
    5. Qualitative information about performance obligations (paragraph 118 of the 2011 ED) and significant judgements (paragraphs 124–127 of the 2011 ED);
  2. disclosures: Interim requirements; and
  3. transition, effective date and early application.

Paper 7A—Disclosures: Disaggregation of Revenue (paragraphs 114—115 of the 2011 ED)

The boards tentatively decided to retain both the requirement to disaggregate revenue and the objective for that requirement in paragraph 114 of the 2011 ED as follows:

          An entity shall disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 The boards also tentatively decided to include implementation guidance to explain that in determining categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, an entity should consider how revenue may be disaggregated in:

  1. disclosures presented outside the financial statements, for example, in earnings releases, annual reports or investor presentations;
  2. information reviewed by management for evaluating the financial performance of operating segments; and
  3. (other relevant analysis in which the entity or its users evaluate performance or resource allocation.
     The boards tentatively decided to move the example of categories included in paragraph 115 of the 2011 ED to the implementation guidance and to clarify that an entity is not required to use a minimum number of categories.

The boards tentatively decided that an entity should explain how the disaggregated revenue information correlates with its reportable segments as required to be disclosed under IFRS 8 Operating Segments/Topic 280 Segment Reporting of the FASB Accounting Standards Codification®.

Thirteen IASB members and all FASB members agreed. One IASB member abstained.

Paper 7B—Disclosures: Reconciliation of Contract Balances and Analysis of Remaining Performance Obligations

Reconciliation of Contract Balances (paragraph 117 of the 2011 ED)

 The boards tentatively decided to replace the requirement in paragraph 117 of the 2011 ED to reconcile the contract balances with a combination of quantitative and qualitative disclosures including:

  1. the opening and closing balances of contract assets, contract liabilities and receivables from contracts with customers (if not separately presented);
  2. the amount of revenue recognised in the current period that was included in the contract liability balance;
  3. an explanation of how the entity’s contracts and typical payment terms will affect the entity’s contract balances; and
  4. an explanation of the significant changes in the balances of contract assets and liabilities, which should include both qualitative and quantitative data. Examples of significant changes could include:
    1. changes to contract balances arising from business combinations;
    2. cumulative catch-up adjustments to revenue (and to the corresponding contract balance) arising from a change in the measure of progress, a change in the estimate of the transaction price or a contract modification;
    3. impairment of a contract asset; or
    4. a change in the time frame for a right to consideration becoming unconditional (that is, re-classified as a receivable) or for a performance obligation to be satisfied (that is, the recognition of revenue arising from a contract liability) that has a material effect on the contract balances.

The boards also tentatively decided to require disclosure of revenue recognised in the period that arises from amounts allocated to performance obligations satisfied (or partially satisfied) in previous periods (this may occur as a result of changes in transaction price or estimates related to the constraint on revenue recognised).

Ten IASB members and all FASB members agreed. One IASB member abstained.

Analysis of Remaining Performance Obligations (paragraphs 119–121 of the 2011 ED)

The boards tentatively decided to retain the requirement to disclose information related to the remaining performance obligations in paragraph 119 of the 2011 ED and to clarify that:

  1. renewals (that do not represent a material right) are not included in the disclosure of remaining performance obligations;
  2. the aggregate amount of the transaction price disclosed in paragraph 119(a) of the 2011 ED is the amount that would not be subject to a significant revenue reversal (that is, the constrained amount); and
  3. an entity is not precluded from including in the disclosures remaining performance obligations contracts with an original duration of less than one year.

In addition, the boards tentatively decided to clarify that disclosure about the significant payment terms relating to an entity’s performance obligations (paragraph 118(b) of the 2011 ED) would include a qualitative discussion about any significant variable consideration that was not included in the disclosure of remaining performance obligations (paragraph 119(a) of the 2011 ED).

Twelve IASB members and all FASB members agreed. One IASB member abstained.

Paper 7C—Disclosures: Contract Costs, Onerous Performance Obligations and Qualitative information

Assets Recognised from the Costs to Obtain or Fulfil a Contract with a Customer (Contract Costs) (paragraphs 128–129 of the 2011 ED)

The boards tentatively decided to replace the requirement in paragraph 128 of the 2011 ED to reconcile the opening and closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer with a combination of quantitative and qualitative disclosures including:

  1. the closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraphs 91 and 94 of the 2011 ED), by main category of asset (for example, costs to obtain contracts with customers, pre contract costs and setup costs);
  2. the amount of amortisation recognised in the period; and
  3. the method the entity uses to determine the amortisation for each reporting period.

Eleven IASB members and all FASB members agreed. One IASB member abstained.

Onerous Performance Obligations (paragraphs 122–123 of the 2011 ED)

The boards tentatively decided to remove the proposed disclosure requirements for onerous performance obligations in paragraphs 122 and 123 (and the reference to onerous performance obligations in paragraph 127) from the 2011 ED.

Fourteen IASB members and all FASB members agreed. One IASB member abstained.

Qualitative Information about Performance Obligations (paragraph 118 of the 2011 ED) and Significant Judgements (paragraphs 124–127 of the 2011 ED)

The boards tentatively decided to retain the qualitative disclosures about performance obligations proposed in paragraph 118 of the 2011 ED and significant judgements as proposed in paragraphs 124–127 of the 2011 ED. The boards also tentatively decided to require the following additional qualitative disclosures:

  1. the judgements made in determining the amount of the costs to obtain or fulfil a contract with a customer capitalised in accordance with paragraphs 91 and 94 of the 2011 ED;
  2. the methods and assumptions an entity uses when determining the amount of the transaction price that will not be subject to a revenue reversal (that is, the constrained amount); and
  3. a description of the practical expedients used in an entity’s accounting policies related to:
    1. adjusting the transaction price for the effects of the time value of money (paragraph 60); and
    2. recognising the incremental costs of obtaining a contract as an expense (paragraph 97).

Ten IASB members and all FASB members agreed. One IASB member abstained.

Paper 7D-Disclosures: Interim Requirements

The IASB tentatively decided to amend IAS 34 Interim Financial Reporting to require an entity to disaggregate revenue in its interim financial statements in accordance with paragraph 114 of the 2011 ED (as amended, as discussed above). For the other revenue disclosure requirements, the IASB observed that an entity would need to consider the general principles of IAS 34.

Eleven IASB members agreed. One IASB member abstained.

The FASB tentatively decided to retain the proposal in the 2011 ED to amend Topic 270 Interim Reporting in the FASB Accounting Standards Codification®, to require an entity to provide the quantitative disclosures proposed in the 2011 ED (including any tentative amendments to those quantitative disclosures explained above) in its interim financial statements. Those quantitative disclosures (as tentatively amended) are:

  1. disaggregated revenue;
  2. the opening and closing balances of contract assets, contract liabilities and receivables from contracts with customers (if not separately presented);
  3. the amount of revenue recognised in the current period that was included in the contract liability balance;
  4. those that relate to the entity’s remaining performance obligations; and
  5. any adjustment to revenue in the current period that relates to performance from a performance obligation satisfied (or partially satisfied) in a previous period.

Four FASB members agreed.

Paper 7E—Transition, Effective Date and Early Application

Transition

The boards tentatively decided that an entity could apply the new revenue Standard retrospectively including the optional practical expedients in paragraph 133/C3(a), (b) and (d). However, the boards tentatively decided that an entity could also elect an alternative transition method that would require an entity to:

  1. apply the new revenue Standard only to contracts that are not completed under legacy IFRSs/US GAAP at the date of initial application (for example, 1 January 2017 for an entity with a 31 December year-end, based on the effective date decision below);
  2. recognise the cumulative effect of initially applying the new revenue Standard as an adjustment to the opening balance of retained earnings in the year of initial application (that is, comparative years would not be restated); and
  3. in the year of initial application, provide the following additional disclosures:
    1. the amount by which each financial statement line item is affected in the current year as a result of the entity applying the new revenue Standard; and
    2. an explanation of the significant changes between the reported results under the new revenue Standard and legacy IFRSs/US GAAP.

Eight IASB members and five FASB members agreed. One IASB member abstained.

Effective date

The boards tentatively decided to require an entity to apply the revenue Standard for reporting periods beginning on or after 1 January 2017.

The boards noted that the period of time from the expected issue of the Standard until its effective date is longer than usual. However, in this case the boards decided that a delayed effective date is appropriate because of the unique attributes of the Revenue Recognition project, including the scope of the entities that will be affected and the potentially significant effect that a change in revenue recognition has on other financial statement line items.

Early application

The FASB reaffirmed its tentative decision in the 2011 ED to prohibit early application. The IASB tentatively decided to change its proposal in the 2011 ED and tentatively decided also to prohibit early application for entities already applying IFRSs (that is, the IASB would not prohibit early application for first-time adopters of IFRSs).

Nine IASB members and all FASB members agreed. One IASB member abstained.

Next steps

The boards have completed their substantive redeliberations of the 2011 ED. As a result, the staff will begin drafting the final revenue Standard. The staff will bring any remaining and any new ‘sweep’ issues to a future board meeting. In addition, the staff will complete the steps required by each board’s respective due process.

 

    Date: 2/19/2013