Eight Issues Surfaced in Post-Mortem of Revenue Accounting Rules

FASB said eight topics surfaced as challenges for public companies in its post-implementation review (PIR) of revenue recognition rules, including a decades-old issue related to determining whether an entity is a principal or an agent in a revenue arrangement. The discussions signaled that more research will be done on the topics, especially on four in the near term: principal versus agent; licensing distinction; estimates of variable consideration; and, short-cycle contract manufacturing (i.e., determining whether revenue should be recognized over time or at a point in time, a challenge for contract manufacturers to apply that can result in different revenue recognition timing for similar transactions depending upon the customization of goods). No new projects were added. “We are focused on any issues and any feedback that we get through the PIR process that will continue going forward,” FASB Chair Richard Jones said. “These are simply areas where we heard some frequent comments that we thought would make some sense to highlight.”

Accounting Rules for Contributions to Defined Benefit Plans Need Clarifications

The accounting rules for reporting credit balances and contributions to defined benefit pension plans are creating confusion among accountants and auditors alike, according to a July 23 letter from the AICPA Financial Reporting Executive Committee (FinREC) to FASB. FinREC recommended that FASB amend Topic 960, Plan Accounting—Defined Benefit Pension Plans, to address the following: reporting differences that have bubbled up in practice; legislation brought on by the coronavirus pandemic; and questions raised during the PCAOB’s inspection process. The board should amend the rules “to address the appropriate reporting for these funding credit balances and the use of funding credits, and to provide appropriate transition guidance,” FinREC Chair Angela Newell wrote. In addition, because the outcome of the project may affect the guidance related to estimating the amounts to be recorded as an employer contribution receivable in defined benefit pension plans, FinREC requested “that the FASB address that issue as part of the same project.”


Funding Woes Looming for Proposed Sustainability Board?

The IFRS Foundation has set its attention on how to fund the proposed International Sustainability Standards Board (ISSB), a task that might not be that easy given the trustee organization’s own “below budget” income in the first quarter. The foundation’s Audit, Finance and Risk Committee said financial results for the three months revealed that its “income was below budget due primarily to delays in receipt of contributions from funding providers, and that expenditure was slightly below budget due to staff turnover,” according to a July 28 trustee report. In June, the Audit, Finance and Risk Committee was updated about the IFRS Foundation’s revised investment strategy and intent to identify a new investment manager, according to the report. Among other things, the committee “discussed funding issues for the proposed ISSB, and noted the importance of securing both immediate seed capital and a diverse range of funding sources for the longer term.” The ISSB is being established under the foundation’s governance to develop global sustainability reporting standards for disclosures in corporate reports. The location of the new board is yet to be determined, but the global nature of the foundation could be enhanced through broadening its global footprint.