Fasb Revenue Recognition Model

IASB and FASB release revenue recognition exposure draft
What is the issue?
On June 24th, the FASB and IASB issued an exposure draft proposing a new revenue recognition model that could fundamentally alter the way entities across a variety of industries recognise revenue. The proposal is an output of the boards' joint efforts to develop a converged revenue recognition standard based on the same principles. A key objective is to increase the consistency of revenue recognition for similar contracts, regardless of industry. The proposed model requires a contract-based approach that focuses on the assets and liabilities that are created when an entity enters into and performs under a contract.
The proposed model requires that revenue is recognised
This may be particularly challenging for service arrangements and long-term contracts. It will also be challenging to determine when performance obligations should be combined and when they should be separated, which will be a key driver in determining the amount and timing of revenue recognition.
Revenue is measured based on the transaction price, which is the amount the customer promises to pay in exchange for goods or services. The transaction price is usually easy to determine when it is a fixed amount of cash at the time of sale. It may be more difficult to determine if the consideration could vary in the future depending on the resolution of an uncertainty or when the transaction price is affected by the time value of money or involves non-cash consideration.
The transaction price will include variable or contingent consideration when such amounts can be reasonably estimated, which is a fundamental change from most current practice. In those cases, the transaction price is measured using a probability-weighted estimate of the consideration expected to be received. The transaction price should also reflect the customer's credit risk by recognising only a probability-weighted estimate of the expected receipts and the impact of the time value of money, when material. The proposal will generally require greater use of estimates than
Product warranties will be accounted for differently than under current guidance, which may impact both the timing and measurement of revenue. The proposal also includes a model for customer return rights that is generally consistent with current practice. The timing of revenue recognition for licenses of intangible assets will depend on whether the license is exclusive, and whether or not the license is for the entire economic life of the