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Revenue Standard :Why are FASB and IASB issuing this Accounting Standards Update

Posted on November 9th, 2016 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

As we know In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a new joint standard on revenue recognition.

This new standard, when implemented, will replace the accounting standards for revenue recognition that currently exist under U.S. GAAP and IFRS.

Many of us are curious why are FASB and IASB issuing this Accounting Standards Update or chaging standard ?

If you refer to note of PWC , KPMG note , it indicate as below:

The prior revenue recognition guidance in U.S. GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. IFRS provided limited guidance and, consequently, the two main revenue recognition standards, IAS 18, Revenue and IAS 11, Construction Contracts, could be difficult to apply to complex transactions.

Additionally, IAS 18 provides limited guidance on important revenue topics such as accounting for multiple-element arrangements.

The Financial Accounting Standards Board and the International Accounting Standards Board initiated a joint project to clarify the principles to recognize revenue and develop a common revenue standard for U.S. GAAP and IFRS that would:

  1. Remove inconsistencies and weaknesses in revenue requirements.
  2. Provide a more robust framework for addressing revenue issues.
  3. Standardize revenue recognition practices across entities, industries, jurisdictions, and capital markets.
  4. Provide more useful information to users of financial statements through improved disclosure requirements.
  5. Simplify the preparation of financial statements by reducing the number of guidelines to which an entity must refer

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Moreover , The core principle as stated from IFRS is to “Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to exchange for those goods or services.”

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