Similarities And Differences Of The FASB And The IASB
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The crucial part of the financial statement is the revenue. Investors look at these statements to judge the financial position of an entity during economic decisions. The FASB and the IASB initiated their joint project on the revenue recognition during the year September 2002 to clarify the principle of the revenue recognition. There were various compromises made to bring in new accounting standard. Since 2008 the boards are working together to bring in a single principle based model for recognizing revenue. In May 2014, the FASB and the IASB came up with the accounting standard update of revenue from contract with customers. Though there are few minor differences, the convergence was finally achieved. In this paper, I am going…show more content… Satisfaction would occur when the customer has the ability to direct the use of, and receive the benefits from, the transferred good or service. Revenue can be recognized over (typically for transferring service) or at a point in time (typically for transferring goods). In general, revenue is recognized in line with pattern of transfer.
CONVERGENCE BETWEEN IFRS AND USGAAP
There are many similarities and differences when comparing revenue recognition criteria of IFRS and US GAAP. The similarities and differences are as follows:
MEASUREMENT CRITERIA –both IFRS and US GAAP use the notion of fair value to measure revenue. The major difference in this definition can be argued for the clause “liability settled”. Some FASB board members argue this method of measurement would not be a fair value approach. This approach would be considered entry value instead of exit value.
RECOGNITION CRITERIA –FASB states that revenue can be recognized when it is realized or realizable and must be earned. IASB created criteria that are quite different. Users of IFRS can recognize revenue when it is probable that future economic benefits will flow to the enterprise, and it can be measured…show more content… CONTRACT REVENUE RECOGNITION –both uses the percentage of completion approach to recognize revenue when there is a reasonable estimate of revenues and costs. The difference in this category lies within the instances where the transaction cannot be reasonably estimated. FASB uses the completed contract method where as the IASB uses the zero profit method.
CONTRACTORS AND CONSTRUCTION FIRMS
Contractors and construction firms have traditionally relied on industry-specific guidance to recognize revenue. ASU 2014-09 will become effective for public companies for annual reporting periods beginning on or after December 15, 2016 and for nonpublic companies on or after December 15, 2017. Public companies cannot elect early application, but nonpublic companies can elect to apply the new standard, but not before December 15, 2016.
IMPACT ON CONTRACTORS
The new revenue recognition standard represents a major accounting change for these businesses, but the change likely will not be as drastic. For