Essay on Revenue Recognition on Fasb and Iasb Convergence Process
I. CONVERGENCE OF U.S. GAAP AND IFRS
Since 2002, Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) have been working toward “convergence” of US General Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). They have made significant progress in efforts to converge critical accounting standards such as those dealing with revenue recognition, financial instruments and leases. Once these projects are complete, the "era" of convergence will be at an end. Nevertheless, the benefits for investors of eventually getting to consistently applied, high-quality, globally accepted accounting …show more content…
The FASB also created a chart showing the five steps a company would follow to apply the new revenue recognition proposals.
Table 2 A company would follow five steps to apply the revenue recognition proposals: | Step 1: Identify the contract(s) with the customer | Key proposal: Price interdependency | Step 2: Identify the separate performance obligations | Key proposal: Distinct goods or services | Step 3 : Determine the transaction price | Key proposal: Probability-weighted expected amount | Step 4 : Allocate the transaction price to the performance obligations | Key proposal: Relative selling price allocation method | Step 5: Recognize revenue when a performance obligation is satisﬁed | Key proposal: Control |
Source: FASB in Focus, June 2010
The AICPA’s Financial Reporting Executive Committee (FinREC) voiced extensive concerns with a joint FASB-IASB proposed standard on revenue recognition that is intended to apply across all industry sectors. “We agree with the theoretical merit of many of the concepts included in the proposed standard,” its comment letter said. “We also believe, however, that certain principles...may be neither