Accounting standard setters who aim to finish up a decade-long overhaul of revenue recognition rules by early next year are still struggling with some key issues about how to make revenue recognition rules more accurate without making them overly complex and requiring too much judgment on the part of companies.
The International Accounting Standards Board is set to debate some of the key issues remaining on the project at a meeting in London next week, such as how some companies should estimate the collectability of revenue and how licenses of corporate assets should be recognized.
While accounting rulemakers aim to simplify already complex rules for revenue recognition, they are trying to avoid forcing companies to spend more time valuing revenue or treat sales contracts the same way they treat financings, where companies record a liability and reduce it as the contract is completed, Kristin Bauer, a Financial Accounting Standards Board practice fellow, said at a Financial Executives International conference in New York on Monday.
“When we talk to [financial statement] users and regulators, people want that revenue number to be a good number,” Bauer said at the conference. “They don’t want it to be subject to future reversals.”
Revenue recognition is already one of the top issues cited by companies in financial restatements and one of the top causes of financial statement fraud. The accounting rulemakers went back to the drawing board from an earlier proposal on revenue recognition last year, and began redeliberating the new rules in July.
“We’re not ready for a broader fair value notion in revenue,” Russell Hodge, global controller of General Electric sa id at the conference. “It’s inconsistent with how we think about cost,” he said. While accounting rulemakers have debated forcing companies to think about the time value of revenue recognition between when a company performs on an obligation and when it accepts payment, Hodge said that would add a lot challenges to the revenue recognition process.
Revenue recognition is one of the biggest remaining convergence projects between the FASB and IASB, but final rules aren’t expected to take effect until at least 2016.
Source: Wall Street Journal
|