Revenue Recognition

The Board and the FASB are conducting a joint project to develop concepts for revenue recognition and a general standard based on those concepts. The general standard would replace the existing standards on revenue recognition, IAS 11 Construction Contracts and IAS 18 Revenue .

Is this project part of the Memorandum of Understanding?

Yes. The MoU sets out a Roadmap of Convergence between IFRSs and US GAAP 2006-2008.

Click here for more information on the MoU.

Next due process step

The Board plans to issue a Discussion Paper (jointly with the FASB) for consultation in the second half of 2008.

IASB Conference - Amsterdam 26 June 2008

For the latest project update, take a look at the Revenue Recognition break-out session presentation [PDF]. 

Due process steps completed

Stage 1: Setting the agenda

Work on this project commenced in 2002. The main reasons for undertaking this project are as follows.

Eliminate weaknesses in existing concepts and standards.

• The revenue recognition requirements in IAS 18 focus on the occurrence of critical events rather than changes in assets and liabilities. Some believe that this approach leads to debits and credits that do not meet the definition of assets and liabilities being recognised on the balance sheet. A practical weakness of IAS 18 is that it gives insufficient guidance on contracts that provide more than one good or service to the customer. It is unclear when contracts should be divided into components and how much revenue should be attributed to each component. The International Financial Reporting Interpretations Committee (IFRIC) receives frequent requests for guidance on the application of IAS 18.

Converge IFRSs and US requirements.

• There are approximately 200 sources of standards and guidance on revenue recognition in US GAAP. These are not all based on consistent concepts. There are substantial differences between IFRSs and US requirements.

Stage 2: Project Planning

This project is being conducted jointly with the FASB. As a joint project, the Board and the FASB share staff resources and research and are working to co-ordinate the issuance of a Discussion Paper, an Exposure Draft and, eventually, a general revenue recognition Standard.

Stage 3: Development and publication of a discussion paper

Over the past four years, the Board has been developing an asset and liability model for revenue recognition. It has also narrowed the possible implementation of the asset and liability model to two broad models. In one (the fair value model) the performance obligations are initially measured at fair value, and in the other (the customer consideration model) they are initially measured by allocating the customer consideration amount. In October 2006, the Boards decided that the discussion paper should explain, illustrate and compare both of the models.

Over the past year, the staff has worked with two small groups of Board advisers to develop further and illustrate the two models. The Board began considering the two models in October and plans to continue its discussions until February 2008.

Estimated project completion

The timing of the publication of an IFRS has not yet been determined.

Further information:

• Click here for the joint IASB-FASB project summary