In June 2014, The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) announced the formation of the Joint Transition Resource Group for Revenue Recognition (TRG). The role of TRG is to keep IASB and FASB informed about possible hurdles predicted in the implementation of the new revenue recognition standards across all industries. The group will also play an important role in providing stakeholders opportunities to learn about the new standards and a platform for sharing knowledge. It will, however, not be involved in providing any sort of guidance on the, well, guidance. The TRG is an interesting group of financial statement preparers, auditors and users from a wide spectrum of industries and backgrounds.
Meetings have already been held for 2014 and are scheduled for 2015. These meetings will be public and co-chaired by the vice chairmen of the IASB and the FASB.
The resource group will convene following the final issuance of the revenue recognition standard later this year. The group is intended to have a limited life and the primary activities of the group are planned to occur before the standard takes effect in 2017.
“Effective implementation of the revenue recognition standard is critical to its success in providing financial statement users with the information they need to make the right decisions about how to allocate their capital. The Boards are committed to ensuring a smooth transition to the new standard, and the transition resource group is an important tool for determining any areas that will need additional guidance before the standard becomes effective in 2017.”
– Russell G. Golden, FASB Chairman
“Revenue is a key performance indicator and is important to every business. Our joint transition group will help to ensure that stakeholders are reading the words in the new revenue standard in the way that we intend that they be read.”
– Hans Hoogervorst, IASB Chairman
October 31 2014
On this day, the TRG discussed five major implementation issues likely expected with the new revenue standards. There were two issues which, according to the boards, required additional research or discussion: accounting for licenses and determining whether goods or services are “distinct”. The group also addressed whether the delay in implementation of the standards is warranted by the board and provided next steps for issues discussed in the prior TRG meeting.
Issues from the July 2014 meeting:
- Gross versus net revenue
- Gross versus net revenue associated with amounts billed to customers
- Sales-based and usage-based royalties in contracts with licenses and goods or services other than licenses
- Impairment testing of capitalized contract costs
Issues from the October 2014 meeting:
- Customer options for additional goods and services and non-refundable upfront fees
- Presentation of a contract asset or a contract liability
- Determining the nature of a license of intellectual property
- Distinct in the context of the contract
- Contract enforceability and termination clauses
Some topics, obviously, were the subject of great debates, beginning with the licensing of intellectual property. The standard provides criteria to determine whether a license of IP is transferred to the customer at a point in time or over time. The TRG first discussed whether this guidance, which affects the timing of revenue recognition, applies only to distinct licenses or whether an entity would apply these criteria if the license were bundled with other goods or services (i.e., not a separate performance obligation). If it is not clear that the license is the primary or dominant component, TRG members said it was unclear whether the criteria should be applied. The TRG has now discussed revenue recognition of IP licenses twice. Because this topic continues to generate diverse views, we are hopeful the boards will provide additional guidance to help constituents implement the guidance.
July 2014 update
The boards have instructed their staff to research whether improvements could be made to the guidance on the principal-agent assessment in arrangements involving intangible goods and services. They plan no further action on two other issues the TRG previously discussed (i.e., gross versus net revenue for amounts billed to customers and impairment testing of capitalized contract costs), except for a possible technical correction to clarify the boards’ intent relating to impairment testing.
Current US GAAP allows a policy election for the presentation of sales and other taxes collected from customers which may be a significant additional implementation effort for some entities. One TRG member asked whether the boards might consider adding guidance similar to current US GAAP to make it easier for companies to implement.
The board will be providing a status update on the five new issues on or before the upcoming meeting on January 26, 2015. That could include a decision to reconsider an issue. Stakeholders can find a log of submissions to date and submit issues for the TRG to discuss on the FASB or IASB websites.
Continue to check here for further news and updates from the TRG and other items related to the new revenue recognition guidance.