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

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Comparison between U.S. GAAP and International Financial Reporting Standards 74 IFRS stage of completion at the end of the reporting period when the outcome can be measured reliably. The outcome can be measured reliably when all of the following conditions are met (IAS 18.20): • The amount of revenue can be measured reliably • It is probable that economic benefits will flow to the entity • The stage of completion can be measured reliably • The costs incurred for the transaction and the costs to complete the transaction can be measured reliably When the outcome of the transaction involving the rendering of services cannot be reliably estimated then revenue shall be recognised only to the extent of the expenses recognised that are recoverable (IAS 18.26). U.S. GAAP service revenue. However, SFAC 5 and SEC SAB Topic 13 refer to revenue from both goods and services. Consequently, the aforementioned general revenue recognition principles for the sale of goods also apply to services. Three common methods that are used to recognize service revenue are: • Specific performance method – used when service revenue is earned by the performance of a single act • Proportional performance method – used when service revenue is earned by the performance of more than one act. However, cost-to-cost input measures cannot be used to measure progress toward completion. • Completed performance method – used when service revenue is earned by the performance of more than one similar or dissimilar acts but the final act is so critical to the entire transaction that revenue cannot be considered earned until the final act is performed. Unlike IFRS, the percentage-of-completion (stage of completion) method shall not be applied to service contracts that are outside the scope of ASC 605-35. Restrictions on recognition of revenues If the seller retains significant risks of ownership, revenue from the sale of goods is not recognised, such as when (IAS 18.16) • There is an obligation for unsatisfactory performance beyond normal warranty provisions • Sale is contingent on the buyer selling the goods • Goods are shipped subject to installation that is significant to the contract and not complete • The buyer has the right to rescind and the seller is uncertain about the probability of return Where a seller retains only an insignificant risk of ownership, such as a retail sale where a refund is offered to the customer, revenue is recognised at the time of sale provided the seller can reliably estimate future returns and recognises a liability for returns based on previous experience and other relevant factors (IAS 18.17). In general, there are similar restrictions on the recognition of revenue under U.S. GAAP. ASC 605-15 includes specific guidance on the recognition of revenue when the right of return exists. According to ASC 605-15-25-1, revenue from a sales transaction in which the buyer has the right of return is recognized at the time of sale only if: • The seller's price to the buyer is substantially fixed or determinable at the date of sale • The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product • The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product • The buyer acquiring the product for resale has economic substance apart from that provided by the seller • The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer • The amount of future returns can be reasonably estimated Bill-and-hold transactions Revenue shall be recognised for a bill-and-hold sale SEC SAB Topic 13 sets forth a significant number of © 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 75 IFRS when the buyer requests that delivery be delayed but takes title and accepts billing provided the following conditions are met (IAS 18, Appendix 1): • It is probable that delivery will be made • The item is on hand, identified, and ready for delivery to the buyer at the time the sale is recognised • The buyer specifically acknowledges the deferred delivery instructions • The usual payment terms apply U.S. GAAP restrictive conditions that must be met in order to recognize revenue on a bill-and-hold sale. The criteria in SAB Topic 13 are more stringent than those in IAS 18. Consequently, situations in which revenue is recognized on bill and hold transactions are rare. Barter transactions According to IAS 18.12, an exchange of goods or services that qualifies for revenue recognition is measured at the fair value of the goods or services received. If the fair value of the goods or services received cannot be measured reliably, revenue is measured at the fair value of the goods or services given up. SIC 31 provides guidance on the measurement of revenues from barter transactions involving advertising. According to SIC-31, revenue cannot be measured reliably at the fair value of advertising services received in a barter transaction involving advertising. A seller can reliably measure the fair value of advertising services supplied in a barter transaction only by reference to nonbarter transactions that (SIC-31.5): According to U.S. GAAP, an exchange of nonmonetary assets that qualifies for revenue recognition is generally measured at fair value of the goods or services given up. However, the fair value of the goods or services received can be used if it is more clearly evident (ASC 845-10-30-1). Similar to IFRS (ASC 605-20-25). • Involve advertising similar to the advertising in the barter transaction • Occur frequently • Represent a predominant number of transactions and amount when compared to all transactions to provide advertising that is similar to the advertising in the barter transaction • Involve cash and/or another form of consideration (e.g. marketable securities, non-monetary assets, and other services) that has a reliably measurable fair value; and • Do not involve the same counterparty as in the barter transaction Customer loyalty programs Award credits shall be accounted for as a separately identifiable component of a sales transaction. The fair value of the consideration received shall be allocated between the award credits and the other components of the sale (IFRIC 13.5). The consideration allocated to the There is no specific guidance that addresses customer loyalty programs in U.S. GAAP. The facts and circumstances of the program should be considered to determine the appropriate accounting. Although customer loyalty programs are not in the scope of ASC 605-25, © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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Comparison between U.S. GAAP and International ... - Grant Thornton

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