WASHINGTON (5/30/14)--The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) announced a converged standard on the recognition of revenue from customer contracts.
The IASB, which is responsible for International Financial Reporting Standards (IFRS), and the FASB, responsible for Generally Accepted Accounting Principles (GAAP) in the United States, jointly issued the new standard Wednesday, believing it will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally.
Revenue is a metric for users of financial statements and is used to assess a company's financial performance and prospects. Previous international and American standards had different requirements, leading to different accounting for transactions that were considered economically similar.
The new, converged requirements for the recognition of revenue in both IFRS and U.S. GAAP provide enhancements to the quality and consistency of how revenue is reported while improving comparability in the financial statements of companies reporting both standards.
The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in exchange for those goods or services.
The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements.
The boards together consulted extensively with interested parties throughout the life cycle of the revenue project, receiving more than 1,500 comment letters further refining their proposals in response to that feedback.
The IASB and FASB have established a joint resource group in order to aid transition to the new standard.