Revenue Recognition Model

The purpose of the proposed Revenue Recognition Guidance is to develop common revenue standards for US GAAP and IFRS that would:

  1. Remove inconsistencies and weaknesses in existing revenue requirements.
  2. Provide a more robust framework for addressing revenue issues.
  3. Improve comparability across companies, industries and capital markets.
  4. Provide more useful information to users of financial statements through improved and enhanced disclosures requirements.
  5. Simplify the preparation of financial statements by reducing the number of guidance that an entity would need to consider.


On November 14, 2011, The FASB and the IASB re-issued the Revenue Recognition Exposure Draft, which sought to revise certain provisions of the original exposure draft. The revised exposure draft continues to require a contract-based approach. Under this approach an entity would recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, the entity would apply all of the following steps:

Step 1: Identify the contract with a customer.
Step 2: Identify the separate performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the separate performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Who’s affected?

The proposal will affect most entities both public and private.

What’s the effective date?

The final standard will have an effective date no earlier than 2015. Full retrospective application will be required with the option to apply some transition reliefs.

What’s next?

The 120-day comment letter period ends on March 13, 2012, and we believe the boards anticipate issuing the final standard by the end of 2012 or early 2013. We will provide further guidance once the exposure draft is updated.

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