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

Comparison between U.S. GAAP and International Financial Reporting Standards 73
IFRS
Where two or more transactions are linked in such a
way that the commercial effect cannot be understood
without reference to the series of transactions as a
whole, the recognition criteria shall be applied to all
transactions together (IAS 18.13).
In an agency relationship, the amounts collected on
behalf of the principal are not revenue of the agent.
Instead revenue is the amount of commission
(IAS 18.8). The Appendix to IAS 18 states that an entity
is acting as a principal if it has exposure to the
significant risks and rewards associated with the sale of
goods or services. It includes a list of features that
indicate an entity is acting as a principal in a transaction.
These features are similar to some of those included in
ASC 605.45.
U.S. GAAP
consideration is contingent on achieving a milestone.
The new guidance allows a vendor to adopt an
accounting policy to recognize all of the arrangement
consideration that is contingent on the achievement of a
substantive milestone in the period the milestone is
achieved. Although the milestone method is not the only
acceptable revenue attribution model for milestone
consideration, other methods that result in the recognition
of all of the milestone consideration in the period the
milestone is achieved are precluded.
The guidance on the milestone method is effective on a
prospective basis for milestones achieved in fiscal years,
and interim periods within those years, beginning on or
after June 15, 2010. Early adoption is permitted.
According to ASC 605-25-25-3, separate contracts
entered into at or near the same time with the same entity
or related parties are presumed to have been negotiated
as a package and should be evaluated to determine if, in
substance, they represent a single arrangement.
The concept for recording revenues gross as a principal
or net as an agent is similar to IFRS. Entities must
consider the indicators of gross and net reporting in
ASC 605-45 in determining whether to recognize revenue
at the full amount billed to a customer or the net amount
retained.
Sale of goods
Revenue from the sale of goods shall be recognised
when all of the following conditions have been met
(IAS 18.14):
• The significant risks and rewards of ownership of
the goods have been transferred to the buyer
• The seller retains neither continuing managerial
involvement to the degree normally associated with
ownership nor effective control of the goods sold
• The amount of revenue can be measured reliably
• It is probable that economic benefits associated
with the transaction will flow to the seller
• The costs incurred or to be incurred can be
measured reliably
ASC 605-10-25-1 and SEC SAB Topic 13 outline the
general principles of revenue recognition for the sale of
goods and other items. Under ASC 605-10-25-1, revenue
is recognized when it is earned and realized or realizable.
According to SAB Topic 13, revenue generally is earned
and realized or realizable when all of the following criteria
are met:
• Persuasive evidence of an arrangement exists
• Collectibility is reasonably assured
• Delivery has occurred or services have been
rendered
• The seller’s price to the buyer is fixed or determinable
Services
Revenue from services is recognised by reference to the
U.S. GAAP does not specifically address accounting for
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