Heads Up — FASB Issues Proposed Revenue ASU to Make Narrow-Scope Amendments and Provide Practical Expedients
This issue discusses the FASB’s recently issued proposed Accounting Standards Update (ASU), "Revenue From Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which would amend certain aspects of the Board’s May 2014 revenue standard, ASU 2014-09, "Revenue From Contracts With Customers." The proposed amendments include those related to (1) collectibility, (2) presentation of sales tax and other similar taxes collected from customers, (3) noncash consideration, (4) contract modifications and completed contracts at transition, and (5) a transition technical correction. The proposal’s effective date and transition provisions would be aligned with the requirements of ASU 2014-09. Comments on the proposed ASU are due by November 16, 2015.
On September 30, 2015, the FASB issued a proposed ASU that would amend certain aspects of the Board’s May 2014 revenue standard, ASU 2014-09. The proposal’s effective date and transition provisions would be aligned with the requirements of ASU 2014-09. Comments on the proposed ASU are due by November 16, 2015.
Editor’s Note: On August 12, 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09 by one year for all entities and permits early adoption on a limited basis. For more information, see Deloitte’s August 13, 2015, journal entry.
The amendments, which (1) are being proposed in response to feedback received by the FASB–IASB joint revenue recognition transition resource group (TRG) and (2) would clarify, rather than change, ASC 606’s core revenue recognition principle, include the following:
- Collectibility — The assessment of collectibility would be clarified with respect to determining when an entity would recognize as revenue consideration it receives if the entity concludes that collectibility is not probable.
- Presentation of sales tax and other similar taxes collected from customers — Entities would be permitted to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., to exclude sales taxes that meet certain criteria from the transaction price).
- Noncash consideration — In determining the transaction price for contracts containing noncash consideration, an entity would include the fair value of the noncash consideration to be received as of the contract inception date. Further, subsequent changes in the fair value of noncash consideration after contract inception would be subject to the variable consideration constraint only if the fair value varies for reasons other than its form.
- Contract modifications and completed contracts at transition — The proposal would add a practical expedient for contract modifications at transition and would define completed contracts as those for which all (or substantially all) revenue was recognized under the applicable revenue guidance before the new revenue standard was initially applied.
- Transition technical correction — Entities that elect to use the full retrospective transition method to adopt the new revenue standard would no longer be required to disclose the effect of the change in accounting principle on the period of adoption (as is currently required by ASC 250-10-50-1(b)(2)); however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted.
Editor’s Note: In July 2015, the IASB issued an exposure draft (ED) that proposes clarifications to IFRS 15, the IASB’s counterpart to the FASB’s new revenue standard. Although the ED would amend some of the same topics as the FASB’s proposed ASU, the two proposals are not identical. Comments on the ED are due by October 28, 2015.
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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.