Financial Accounting Standards Board
Revenue recognition
a joint project of the FASB and IASB
FASRI Roundtable
October 19, 2010
Norwalk, CT
The views expressed in this presentation are those of the presenters, not necessarily those of the FASB.
Official positions of the FASB are reached only after extensive due process and deliberations.
Agenda
• Project timeline
• Summary of the proposals
• Summary of outreach
• Feedback on the proposals
• Q&A
2
Project timeline
3
24 June
2010
22 October
2010
Exposure
Draft
Comment
letters
received
Targeted
outreach
2011
Boards’ redeliberations
Final
standard
Public
roundtables
Roundtables will be held in
Norwalk, London, Kuala Lumpur,
and Silicon Valley
Scope of the Exposure Draft
4
• Scope of the proposal is limited to revenue from
contracts with customers
– Customer: a party that has contracted with an entity to
obtain goods or services that are an output of the entity’s
ordinary activities.
• Contracts that are not in scope:
-Leases, insurance contracts, most financial instruments,
guarantees (other than warranties), some nonmonetary
exchanges
-A contract may be partially in the scope of the model
Summary of the revenue proposals
5
Core principle:
Recognize revenue to depict the transfer of goods or services
in an amount that reflects the consideration expected to be
received in exchange for those goods or services
Steps to apply the core principle:
1. Identify
the contract(s)
with the
customer
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Step 1
1. Identify
the contract(s)
with the
customer
6
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Key proposal: price interdependence
• combine contracts if prices are interdependent
• segment a contract if prices are independent
• contract modifications accounted for separately if priced
independently
Step 2
1. Identify
the contract(s)
with the
customer
7
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Key proposal: distinct goods or services
• separate performance obligation is a promise to transfer a
distinct good or service to the customer
• a good or service is distinct if it:
– is sold separately
– has a distinct function and a distinct profit margin
Step 3
1. Identify
the contract(s)
with the
customer
8
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Key proposal: expected amount
• transaction price is the expected (probability-weighted)
consideration from the customer, and reflects:
– reasonable estimates of contingent amounts
– credit risk
– implicit financing
Step 4
1. Identify
the contract(s)
with the
customer
9
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Key proposal: relative selling price allocation
• transaction price allocated to the separate performance
obligations on relative selling price basis
• selling prices estimated if necessary
• no residual method
Step 5
1. Identify
the contract(s)
with the
customer
10
2. Identify
the separate
performance
obligations
3. Determine
the transaction
price
4. Allocate
the transaction
price
5. Recognize
revenue when a
performance
obligation is
satisfied
Key proposal: transfer based on control
• recognize revenue when a performance obligation is
satisfied by transferring a good or service to the customer
• transferred when customer obtains control
• for development or construction contracts, revenue is
recognized continuously only if the customer controls WIP
Summary of the cost proposals
• Recognize liability for onerous performance
obligation
– onerous if expected costs exceed its carrying amount
• Expense all costs of obtaining a contract
• Capitalize costs incurred in fulfilling a contract if:
– relate directly to a contract (or a contract under
negotiation)
– generate or enhance a resource used to satisfy
performance obligations in the future
– are expected to be recovered
11
Summary of disclosure proposals
12
Disclose qualitative and quantitative information
to help users understand the amount, timing and
uncertainty of revenue and cash flows from
contracts with customers
• Disaggregation of revenue
• Reconciliation of contract balances
• Maturity analysis of remaining performance
obligations for contracts exceeding one year
• Judgments in applying the requirements
Summary of outreach
• Meetings with various industries
13
• Live webcasts –general and
industry focused (real estate,
construction, & technology)
– i.e. media & film, airline,
engineering & construction,
contract manufacture,
• Recorded podcast
software, real estate,
• Presentations at various
telecom, technology,
professional organizations and
franchise, insurance,
conferences
biotech/pharmaceutical, asset
management, auto,
• Planned roundtables (Norwalk,
aerospace & defense
CT, Stanford CA, Kuala Lumpur,
London)
• Meetings with user groups
• Meetings with Big 4 firms
– i.e. Surety firm
representatives, ITAC,
PCFRC
Summary of feedback received
• Control
14
• Disclosures
• Identifying separate
• Transition
performance obligations • Warranties
• Onerous performance
• Exclusive/non-exclusive
obligations
license
• Variable consideration
Conclusion
15
The deadline for comment letters is October 22,
2010.
The Boards will begin to redeliberate the proposals
shortly thereafter with the goal of issuing a final
standard in June 2011.
FASB & IASB Contacts
FASB contacts:
Kenny Bement (Project Manager) [email protected]
Liz Gagnon (Assistant Project Manager) [email protected]
Prasadh Cadambi (Practice Fellow) [email protected]
Libby Biittner (Postgraduate Technical Assistant) [email protected]
FASB contacts:
Henry Rees (Technical principal) [email protected]
Glenn Brady (Senior Technical manager) [email protected]
April Pitman (Technical manager) [email protected]
Manuel Kapsis (Assistant technical manager) [email protected]
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Questions?
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