Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 70 6. Income and expenditure 6.1 Revenue - general Note: In June 2010, the IASB and FASB issued proposed guidance, Revenue from Contracts with Customers, as part of a joint project to develop a common revenue recognition standard for IFRS and U.S. GAAP. The proposed guidance would supersede the guidance in IAS 18, Revenue, and IAS 11, Construction Contracts, and most existing guidance in ASC 605, Revenue Recognition. The proposed guidance would establish principles that entities would apply to provide financial statement users with useful information about the amount, timing, and uncertainty of revenue and cash flows resulting from contracts with customers. The proposed guidance would apply to most contracts with customers to provide goods or services. It would not apply to certain contracts that are within the scope of other generally accepted accounting standards, such as lease contracts, insurance contracts, financial instruments, and nonmonetary exchanges between entities in the same line of business to facilitate sales to third party customers. The core principle of the proposed guidance would require an entity to recognize revenue in a manner that depicts the transfer of control of goods or services to customers in an amount that reflects the consideration the entity receives or expects to receive for those goods or services. To apply this principle, an entity would apply the following steps: • Identify the contract with a customer • Identify the separate performance obligations in the contract • Determine the transaction price • Allocate the transaction price to each separate performance obligation • Recognize revenue as the entity satisfies each performance obligation The Exposure Draft does not specify an effective date because the Boards plan to separately address the effective dates for all of their convergence projects. Entities would be required to apply the new revenue guidance retrospectively. The Boards received significant feedback on the proposed guidance through the comment letter process, roundtable discussions, and outreach activities and are in the process of redeliberating the conclusions in the proposed guidance. The Boards have targeted June 2011 as the date a final standard will be issued. IFRS Relevant guidance: IAS 18; IFRIC 13, 15, and 18; SIC- 31 U.S. GAAP Relevant guidance: ASC 605, 845, and industry topics; SFAC 5 and 6; SEC SAB Topic 13 Introduction The term revenue encompasses the gross inflow of economic benefits during the period arising in the course of ordinary activities when those inflows result in increases in equity, other than increases relating to contributions from equity participants (IAS 18.7). IAS 18 is a general standard on revenue recognition, it applies to revenue from (IAS 18.1): • The sale of goods • The rendering of services • The use by others of enterprise assets yielding SFAC 6.78 defines revenues as inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. Revenue recognition guidance in U.S. GAAP is extensive and is included in several topics in the Codification, as well as SEC guidance, such as SAB Topic 13 that address specific revenue recognition issues. The content in this section is more general and is derived primarily from ASC 605-10, 605-15, 605-20, 605-25, and 605-45. © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 71 IFRS interest, royalties, and dividends The standard does not deal with revenue from leases, dividends from investments accounted for under the equity method, insurance contracts, changes in the fair value of financial assets and liabilities, changes in the value of other current assets, extraction of mineral ores, or agriculture (IAS 18.6). Revenue from services directly related to construction contracts is addressed in IAS 11 rather than IAS 18 (IAS 18.4). An agreement for the construction of real estate may be within the scope of IAS 11 or 18. The determination is a matter of judgement that depends on the terms of the agreement and the specific facts and circumstances of the arrangement. IFRIC 15 provides guidance to assess whether an agreement for the construction of real estate is within the scope of IAS 11 or 18 and when revenue from the construction of real estate shall be recognised. IFRIC 18 applies to the accounting for transfers of property, plant, and equipment by entities that receive such transfers from their customers. It addresses the recognition and measurement of the transferred item. If the transferred item meets the definition of an asset, an asset would be recognised and revenue would be recognised in accordance with IAS 18. Revenue shall be measured at the fair value of the consideration received or receivable (IAS 18.9). Although IAS 18 does not have specific criteria to separate identifiable components of a single transaction, in certain situations separation is required in order to reflect the substance of the transaction (IAS 18.13). IAS 18 does not provide guidance on allocating consideration received to the elements of the arrangement. U.S. GAAP Industry specific guidance, such as software and real estate is included in other ASC topics. According to SFAC 5.83, revenues and gains are generally measured by the exchange values of the assets (goods or services) or liabilities involved. In many cases, the specific literature that applies to a particular revenue transaction includes measurement guidance. ASC 605-25 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to measure and allocate arrangement consideration to the separate units of accounting. Other ASC topics may also address multiple-element arrangements. ASC 605-25-15-3 and ASC 605-25-15-3A address the interaction of ASC 605-25 with other Codification topics. If ASC 605-25 applies, the delivered item(s) are considered a separate unit of accounting if (ASC 605-25-25-5): • The delivered item(s) has value to the customer on a standalone basis • There is objective and reliable evidence of the fair value of the undelivered item(s) (see below for amended guidance) • If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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