The IASB and FASB plan to introduce a new revenue recognition model. The model features a contract-based, five-step analysis to be applied across sectors. The proposals may accelerate or defer revenue recognition for some entities and the impacts may be felt right across the business.
Key attributes of the revised exposure draft
- Introduces a single revenue recognition model that would apply to all contracts with customers
- Sets out two approaches to recognizing revenues:
- over time, which is similar to current percentage of completion accounting
- at a point in time, which is similar to current accounting for the sale of goods.
The model features a contract-based, five-step analysis of transactions to determine whether and how much revenue is recognized. The five steps are:
- Identify the contract with the customer
- Identify the separate performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the separate performance obligations in the contract
- Recognize revenue when (or as) each performance obligation is satisfied.