FASB proposes more clarifications to revenue standard
FASB proposed another round of technical corrections and changes to its new revenue recognition standard Wednesday that would include clarifications to guidance on contract costs, and on preproduction costs related to long-term supply arrangements.
In May 2014, FASB and the International Accounting Standards Board (IASB) issued a converged revenue recognition standard. Through the boards’ joint Transition Resource Group, financial statement preparers presented issues that the boards decided to clarify.
The boards agreed on some clarifications and disagreed on others. The IASB issued its changes in Clarifications to IFRS 15 last month. FASB has issued accounting standards updates addressing narrow-scope improvements and practical expedients, licensing and identifying performance obligations, and principal versus agent considerations.
FASB proposed more changes Wednesday in Proposed Accounting Standards Update, Technical Corrections and Improvements to Update No. 2014-09, Revenue From Contracts With Customers (Topic 606).
The changes proposed Wednesday would:
- Clarify which contracts are in the scope of existing guidance in Subtopic 340-10, Other Assets and Deferred Costs—Overall, and which are in the scope of the new guidance in Subtopic 340-40, Other Assets and Deferred Costs—Contracts With Customers.
- Clarify that when performing impairment testing for contract costs capitalized in accordance with the recognition provisions of Subtopic 340-40, an entity should consider expected contract renewals and extensions and should include both the amount of consideration it already has received but has not recognized as revenue and the amount the entity expects to receive in the future.
Clarify that impairment testing first should be performed on assets outside the scope of Topic 340, Other Assets and Deferred Costs (such as Topic 330, Inventory), then assets within the scope of Topic 340, then asset groups and reporting units within the scope of Topic 360, Property, Plant, and Equipment, and Topic 350, Intangibles—Goodwill and Other. Read more on the Journal of Accountancy.