The IASB and the FASB continued their deliberations on the revenue recognition project by discussing the presentation and disclosure requirements for an entity's contracts with customers, disclosures about assets from contract acquisition or fulfilment costs, impairment and amortisation of assets from contract acquisition or fulfilment costs, recognition of an asset from contract acquisition costs, and onerous contracts.
Presentation and disclosures of contracts with customers
The boards tentatively decided to retain the presentation and disclosure requirements that were proposed in the exposure draft Revenue from Contracts with Customers with the following amendments and clarifications.
Presentation of contract assets and contract liabilities
The boards clarified that an entity could use labels other than 'contract asset' and 'contract liability' to describe those assets and liabilities in the financial statements. However, an entity should disclose sufficient information to enable users of the financial statements to clearly distinguish between unconditional rights to consideration (a receivable whether billed or unbilled) and conditional rights to consideration (ie a contract asset).
All members of both boards that were present supported that clarification.
Disaggregation of revenue
The boards tentatively decided that:
- the revenue standard should not prescribe the specific categories into which an entity should disaggregate revenue. Instead, the standard should provide a clear disaggregation principle and examples of categories that may be appropriate. That decision was supported by twelve members of the IASB and all members of the FASB.
- an entity should disaggregate revenue in the statement of comprehensive income or in the notes to the financial statements. That clarification was supported by all the IASB members present and by six FASB members.
- an entity would not be required to also disaggregate the impairment loss allowance (for customers' credit risk that is presented adjacent to revenue). That clarification was supported by twelve members of the IASB and four members of the FASB.
Reconciliation of contract assets and contract liabilities
The boards clarified that an entity should include additional line items in the reconciliation of contract assets and contract liabilities if those additional reconciling items would be needed for understanding the change in the balance of a contract asset or contract liability. The boards also tentatively decided that an entity does not need to include specified line items in the reconciliation if those reconciling items would not be useful for explaining a material change in that contract asset or contract liability balance. All board members present agreed with that clarification.
Disclosure of remaining performance obligations
The boards tentatively decided that:
- an entity should disclose the amount of the transaction price that is allocated to remaining performance obligations for contracts that have both of the following attributes:
o an original expected contract duration of more than one year; and
o terms and conditions that result in the entity, in practice, being required to apply each step of the revenue model (specifically, to determine the transaction price and to allocate that transaction price to the separate performance obligations) in order to recognise revenue. An entity would not be required to provide this disclosure if, in practice, the entity would not need to specifically apply those steps of the revenue model to recognise revenue (eg for some 'time and materials' contracts).
- an entity should explain when it expects those amounts to be recognised as revenue, either on a quantitative basis in time bands that would be most appropriate for the duration of the contract or by using a mixture of quantitative and qualitative information.
All FASB members and nine IASB members agreed with those decisions.
Disclosures about assets from contract acquisition or fulfilment costs
The boards tentatively decided that an entity should disclose, for each reporting period, a reconciliation of the carrying amount of an asset arising from the costs to acquire or fulfil a contract with a customer, by major classification (eg acquisition costs, precontract costs, and setup costs), at the beginning and end of the period, separately showing:
- impairment losses reversed (under IFRSs only, not applicable in US GAAP).
In addition, the boards tentatively decided that an entity should provide the following qualitative disclosures:
- a description of the method used to determine the amortisation for the period
- for impairment losses reversed under IFRSs, the circumstances that led to the reversal of the impairment loss.
Eleven members of the IASB and five members of the FASB agreed with those decisions.
Impairment of assets arising from contract acquisition or fulfilment costs
The boards tentatively decided that an entity should recognise an impairment loss to the extent that the carrying amount of the asset exceeds (a) the amount of consideration to which the entity expects to be entitled in exchange for the goods or services to which the asset relates, less (b) the remaining costs that relate directly to providing those goods or services. To determine the amount to which an entity expects to be entitled, an entity should use the principles for determining the transaction price. For IFRSs, reversals of previous impairments are required when the impairment condition ceases to exist. For US GAAP, reversals of previous impairments are prohibited. All of the board members present agreed with the decision.
Amortisation of assets arising from contract acquisition or fulfilment costs The boards tentatively decided to retain the proposal in the exposure draft that would require an entity to amortise the asset on a systematic basis consistent with the pattern of transfer of goods or services to which the asset relates. The boards clarified that the asset might relate to goods or services to be provided under future contracts with the same customer (eg renewal options). Eight members of the IASB and six members of the FASB agreed with those decisions.
Recognition of an asset from contract acquisition costs As a practical expedient, the boards tentatively decided that for contracts with a duration of one year or less, an entity should be permitted to recognise contract acquisition costs as an expense when incurred. Eleven members of the IASB and six members of the FASB agreed with that decision.
The boards tentatively decided to limit the application of the onerous test to performance obligations that an entity satisfies over time (eg long-term service contracts).
In addition, the boards tentatively decided that the costs that an entity should consider when applying the onerous test are the lower of:
- the costs that relate directly to satisfying the performance obligation (defined in paragraph 58 of the exposure draft); and
- any amounts that the entity would have to pay to cancel the contract.
All board members present agreed with those decisions.
In June 2011, the boards plan to discuss the following topics:
- transition and effective date; and
- application of the revenue model to some industries (eg the telecommunications industry).