The boards discussed three topics:
- licensing contracts
- subsequent measurement of performance obligations
- contract costs.
The boards discussed the nature of the performance obligations in a contract in which an entity grants a customer the right to use, but not own, intellectual property of the entity, eg a software licence.
The boards decided tentatively that:
- if a customer obtains control of the entire licensed intellectual property, the contract should be considered a sale, rather than a license or lease, of the intellectual property. That would be the case, for instance, if an entity grants a customer the exclusive right to use its intellectual property for the duration of its economic life.
- if a customer does not obtain control of the entire licensed intellectual property and the entity has promised to grant an exclusive license, the promised asset is similar to the asset that a lessor promises in a lease. Consequently, consistently with the Boards' tentative decisions in the Leases project, the entity has a series of performance obligations. It satisfies those obligations over time as it permits the customer to use its intellectual property.
- in all other cases, the promised asset is the licence. The promise to grant that licence is a single performance obligation. The entity satisfies that obligation when it enables the customer to use the licence and benefit from it. If there are other performance obligations in the contract, an entity should consider whether the performance obligation for the licence is a separate contract segment or if it should be combined with those other performance obligations.
Subsequent measurement of performance obligations
The boards discussed how performance obligations should be measured after contract inception. The boards tentatively confirmed that performance obligations within the scope of the revenue recognition standard should be remeasured after contract inception only when they are onerous.
For the onerous test, the boards decided tentatively that:
- an entity should conduct the onerous test at the level of contract segments.
- an entity should compare the amount of the transaction price allocated to the remaining performance obligations in a segment with the expected costs to satisfy those performance obligations (rather than the current value of the goods and services underlying those performance obligations).
- if the expected costs to satisfy the remaining performance obligations in a segment exceed the amount of the transaction price allocated to those performance obligations, an entity should recognise a liability and a corresponding contract loss. The entity should measure the liability at the expected costs to satisfy the remaining performance obligations in that contract segment less the transaction price allocated to those performance obligations.
- at each subsequent financial statement date, an entity should update the measurement of the liability for the onerous segment.
- for the onerous test, costs are the direct costs, ie all costs that relate directly to the specific contract or that were incurred only because the entity entered into the contract.
The boards discussed whether specific guidance on contract costs is needed in the revenue recognition standard.
The IASB decided tentatively not to develop guidance for accounting for contract costs. An entity would account for those costs in accordance with other standards as applicable, eg IAS 2 Inventory.
The FASB directed the staff to analyse further the effects of withdrawing guidance relating to costs from Accounting Standards Codification Topic 605 Revenue.
In November and December, the staff will test the proposed revenue recognition model by conducting a series of workshops in London, Tokyo, Melbourne and Norwalk with preparers of financial statements from various industries.
At the December meeting, the boards plan to consider warranties, rights of return and the use of estimates of uncertain consideration.