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New FASBIASB Proposal for Revenue Recognition Finds Broad SupportAccording...

RevenueRecognition.com recently surveyed senior financial executives from 515 companies about the FASB/IASB proposal for a new revenue recognition model. The model, published in December 2008, proposes a single revenue recognition principle based on changes in contractual assets and liabilities for use in both US GAAP and IFRS. The FASB is encouraging all interested parties to submit comment letters by June 19, 2009.

In their proposal, the FASB/IASB presented many questions about the key points of the model. The RevenueRecognition.com research team worked with staff members of the FASB and IASB revenue recognition project to create a survey based on these questions. The objective was to find out how some of the major changes might be received by the corporate finance and accounting professionals charged with implementing them. Key findings include:

New Model Finds Broad Support, Strong Dissent:

Overall, 54% of respondents agreed or strongly agreed that the proposed contract-based approach to revenue recognition would clarify the earnings process. 17% were uncertain about the impact. However, it was clear that the more complicated their contracts were, the more likely respondents were to disagree. The key concern was whether contracts can capture ongoing changes in complex business relationships efficiently enough to be the sole basis for revenue accounting.

Some See Impact on Revenue Reporting:

66% said there would be little or no difference in the timing of their revenue recognition. But for industries such as construction, defense, engineering, services, and software where long-term, multi-phase projects make customer control very difficult to determine or even achieve, the impact could be significant.

Simplified Pricing:

More than 70% agreed with the Boards's proposal to use stand alone pricing as the basis for allocating revenue recognition and that management should be allowed to use estimated prices under some circumstances. However, there were serious concerns expressed on the matter of estimated prices. Respondents recommended standard models be established, even if they have to be industry specific, and that management be required to disclose how price estimates are made.

Consistent Definitions:

The Boards's proposed the performance obligation as a single accounting unit to replace the use of deliverables, elements, and components. More than 70% agreed or strongly agreed that this would help them identify components of a contract more consistently than existing practice.

Accounting for Contracts

In accounting, it'ss the exceptions that make the rule, so dissenting opinion is critical for understanding the feasibility and fairness of any proposal. The objections expressed by survey respondents all pointed to a fundamental question: Are contracts an accurate and timely reflection of economic activity The Boards's proposal may lead to the adoption of new contracting practices, which may be the least onerous impact any fundamental change in revenue recognition accounting could be expected to have.

Respondents to our survey were certainly open to the idea of sensible change in revenue recognition standards, said Gottfried Sehringer, Executive Editor at RevenueRecognition.com. The results suggest that the contract-based approach, with some fine tuning, has the potential to streamline the regulatory landscape. However, the results also reinforce that companies with complex business models will continue to have complex revenue processes.

Download Information

The full report, A New Model for Revenue Recognition, is available free of charge at www.RevenueRecognition.com. The survey was conducted in April 2009. In all, responses were accepted from 515 high-ranking finance and accounting executives including VPs, Directors, CFOs, and Controllers. For more information, contact us by email: info(at)RevenueRecognition.com.

About RevenueRecognition.com

RevenueRecognition.com is dedicated to educating finance professionals on revenue management and related issues. The site focuses on revenue accounting, revenue recognition, revenue reporting and forecasting, industry specific revenue challenges, Sarbanes-Oxley compliance, internal controls, SEC, FASB, and IASB guideline compliance. RevenueRecognition.com is sponsored by Softrax Corporation, a leading provider of revenue management software solutions. To learn more about Softrax solutions, customers and partners, please visit www.softrax.com. Contact us via email at: info(at)RevenueRecognition.com.

Contact:

Gerry Murray

RevenueRecognition.com

781 830-9239

info(at)RevenueRecognition.com

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