Perspectives

TRG Snapshot

Summary of Revenue Implementation Issues Discussed to Date

This edition summarizes the nearly 40 implementation issues discussed, and general agreement reached, by the FASB’s and IASB’s joint transition resource group (TRG) for revenue recognition in its six meetings held to date.

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Introduction

Since the May 2014 release of the FASB’s and IASB’s new revenue standard — issued by the FASB as ASU 2014-09 (codified primarily in ASC 606) and by the IASB as IFRS 15 — the boards have been working to identify issues related to the standard’s implementation. The boards’ joint revenue transition resource group (TRG) has been an integral part of this process. As noted on the FASB’s Web site, the TRG comprises financial statement preparers, auditors, and users from “a wide spectrum of industries, geographical locations and public and private organizations,” and board members of the FASB and IASB have attended the TRG’s meetings. In addition, representatives from the SEC, PCAOB, IOSCO, and AICPA are invited to observe the meetings.

The TRG does not issue guidance but was formed instead to provide feedback on the standard’s implementation and has played an important role in addressing issues raised by stakeholders. In its six meetings held thus far, the TRG has addressed nearly 40 implementation issues. By analyzing and discussing potential implementation issues, the TRG has helped the boards determine whether they need to take additional action, such as providing clarification or issuing other guidance.

On January 21, 2016, the IASB issued an announcement that it has completed its decision-making process related to clarifying the new revenue standard and that the IASB does not plan to schedule any more TRG meetings for IFRS constituents. However, the FASB will continue to address implementation issues and has scheduled three TRG meetings for 2016. Offering its support for the TRG’s mission, the SEC staff recently commented on the implementation of the new revenue standard, which included the following key points on the TRG:

  • The TRG’s objective of soliciting, analyzing, and publicly discussing stakeholder implementation issues remains relevant (i.e., as a mechanism to promote more consistent application of the new revenue standard).
  • While the IASB will no longer attend TRG meetings, TRG meeting participants should be prepared to view matters from a global perspective.
  • The SEC staff attends TRG meetings and will use the discussions as a basis for assessing the appropriateness of domestic and foreign registrants’ revenue recognition policies. Registrants should therefore monitor and consider TRG discussions and meeting minutes (which are available on the standard setters’ Web sites) in the development of reasonable revenue recognition accounting policies. 
  • The SEC staff strongly encourages domestic and foreign filers to consult with the OCA if they anticipate selecting an accounting policy that is inconsistent with TRG discussions (i.e., in which general agreement was reached and documented in meeting minutes).

This TRG Snapshot summarizes issues discussed by the TRG to date, which are organized topically in a manner consistent with their arrangement in the new revenue standard. The accompanying appendix in the attached file lists the issues chronologically and includes links to additional information.

TRG Snapshot | March 2016

Effective Date and Transition

Deferral of the New Revenue Standard’s Effective Date

In August 2015, the FASB issued ASU 2015-14, which delays the effective date of the new revenue standard by one year and permits early adoption on a limited basis. Specifically, ASU 2015-14 provides the following guidance for entities reporting under U.S. GAAP:

  • Public entities — The new revenue standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016, including interim reporting periods within the annual periods).
  • Nonpublic entities — The new revenue standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. In addition, nonpublic entities can elect to early adopt the new revenue standard as of the following:
    • Annual reporting periods beginning after December 15, 2016, including interim periods.
    • Annual reporting periods beginning after December 15, 2016, and interim periods within annual reporting periods beginning one year after the annual reporting period of initial application of the new revenue standard.

Contract Modifications at Transition (January 2015 TRG Meeting)

To adopt ASC 606, entities will need to account for the effects of contract modifications for the periods called for by the transition method elected. For some entities, however, accounting for contract modifications before the date of initial adoption will be challenging — if not impracticable — because of the high volume and long duration of customer contracts that are frequently modified. Accordingly, stakeholders expressed the view that a practical expedient should be added to the new revenue guidance.

TRG members generally agreed that a practical expedient would be helpful, and the FASB staff noted at the January 2015 TRG meeting that the FASB was considering such a practical expedient.

Editor’s Note: On September 30, 2015, the FASB issued a proposed ASU that would add a practical expedient permitting entities to determine and allocate the transaction price on the basis of all satisfied and unsatisfied performance obligations in a modified contract at the beginning of the earliest period presented in accordance with the guidance in ASC 606. Given this practical expedient, an entity would not be required to consider each individual contract modification upon transition to ASC 606. For additional information about the proposed ASU, see Deloitte’s October 2, 2015, Heads Up.

Completed Contracts at Transition (July 2015 TRG Meeting)

Under the modified retrospective transition method, entities will apply the new revenue standard only to contracts that are not completed as of the date of initial application. The new revenue standard states that a contract is considered completed if the entity has transferred all of the goods or services identified in accordance with current GAAP. In light of this, stakeholders questioned (1) when a contract is considered completed for purposes of applying the transition guidance under the modified retrospective method and (2) how to account for completed contracts after adoption of the new revenue standard.

TRG members generally agreed that a practical expedient or further clarifications to the guidance would be helpful.

Editor’s Note: On September 30, 2015, the FASB issued a proposed ASU to amend the new revenue standard and clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application of the standard. For more information about the proposed ASU, see Deloitte’s October 2, 2015, Heads Up.

 

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