Revenue Recognition FASB and IASB

Question: Discuss about theRevenue Recognitionfor FASB and IASB. Answer: Overview of the Current Discussion Both FASB and IASB gave the revenue recognition converged standard in May 2014. It offers an inclusive model for revenue recognition aimed at increasing the comparability of the statements (financial) across industries and companies essentially ease the complication intrinsic in the current revenue recognition guidelines (Deegan, 2012). However, the salient issue being debated upon relates to the identification of performance obligation in the new revenue model. The issue has activated a debate aimed at defining what performance obligation entails, and explain the principles for deciding if services or goods in a contract need to be recorded as a group or individually. As provided under the ASC 606, the performance obligation describes the promise to transferring a commodity. It can be explicitly outlined in a contract or implied. For instance, it can be customary implied by business practice or published policy outside a contract. For example, administrative tasks may be performed, but such does not amount to a performance obligation since no service or good is transferred to the customer. The price of the transaction will be allocated to a different performance obligation. Rationale for Current Discussion The identification of performance obligations is significant since it will have an essential impact on when as well as how recognition of revenue will be undertaken. Understanding this issue will be substantial in illustrating how it will be allocated a component of a transaction price. The discussion or the project has helped shown that a performance obligation will only be allocated a price when the service or good is distinct or where the service or good is a component of series of distinct services or goods which are substantially the same as well as display the same trend of transfer to a customer. The project is only significance since it has helped show how to satisfy the performance obligations. It has explained that the revenue allocated to the performance obligation must be recognized when the services or goods are transferred to the customer that happens where the customer has control of the asset or the utilization of the service. Relating to the benchmarks for deciding if services and goods in a given contract need to be recorded distinctly or as a cluster is also a major project associated with revenue recognition (Altamuro, Beatty Weber, 2005). The project has shown the weaknesses and inconsistencies in the previous revenue Standards as well as inadequacy in revenue disclosure requirement. With the IFRS 15, these deficiencies are addressed, and the investors will have adequate information to understand the revenue of the company alongside the estimates and judgment a company makes (Schipper et al., 2009). The project has enhanced the comparability of revenue from contracts with customers. It has shown how the company will account for customer modifications. There is now a clear framework that will be useful in determining whether the service or good in a contract is dealt with separately or as a collection hence eliminating the deficiencies previously encountered (Briner, 2001). References Altamuro, J., Beatty, A. L., Weber, J. (2005). The effects of accelerated revenue recognition on earnings management and earnings informativeness: Evidence from SEC Staff Accounting Bulletin No. 101. The Accounting Review, 80(2), 373-401. Briner, R. F. (2001). Subtle issues in revenue recognition. The CPA Journal, 71(3), 52. Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia. Schipper, K. A., Schrand, C. M., Shevlin, T., Wilks, T. J. (2009). Reconsidering revenue recognition. Accounting Horizons, 23(1), 55-68.