United States

FASB proposes additional corrections to new revenue guidance

FINANCIAL REPORTING INSIGHTS  | 

On September 19, 2016, the Financial Accounting Standards Board (FASB) issued proposed Accounting Standards Update (ASU), Technical Corrections and Improvements to Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) – Additional Corrections. The proposed ASU would make the following changes to the new revenue recognition and cost deferral guidance added to the FASB’s Accounting Standards Codification by ASU 2014-09:

  • Loan guarantee fees. The proposed ASU would clarify that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606.
  • Contract asset versus receivable. Stakeholders have expressed concerns that Example 38, Case B in Topic 606 indicates that an entity cannot record a receivable before its due date. The proposed ASU would provide a better link between the analysis in Example 38, Case B and the receivables presentation guidance in Topic 606.
  • Refund liability. Stakeholders have expressed concerns that Example 40 in Topic 606 indicates that a refund liability should be characterized as a contract liability. The proposed ASU would remove from the journal entry in Example 40 the reference to the term contract liability.
  • Advertising costs. The proposed ASU would reinstate the guidance on the accrual of advertising costs that had been included within Subtopic 340-20, Other Assets and Deferred Costs – Capitalized Advertising Costs, and was superseded by ASU 2014-09.

Some of these proposed revisions resulted from submissions to the FASB-IASB Transition Resource Group for Revenue Recognition, which was established by the FASB and the International Accounting Standards Board (IASB) to discuss application issues arising in practice with respect to the new revenue recognition and cost deferral guidance as originally issued in ASU 2014-09 and International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers (as originally issued), respectively. The FASB’s previously proposed and final significant changes to the new guidance are discussed in our summary, Revenue recognition: In motion. For information about the revisions made to IFRS 15, refer to our article, IASB issues amendments to IFRS 15. The IASB has no further changes to IFRS 15 pending.

The proposed ASU is available for comment until October 4, 2016. If finalized, the anticipated effective date and transition requirements for the proposed ASU would be the same as the effective date and transition requirements for the new revenue recognition and cost deferral guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020.