Response to the Financial Accounting Standards Board's and the International Accounting Standard Board's Joint Discussion Paper Entitled, 'Preliminary Views on Revenue Recognition in Contracts with Customers'

19 Pages Posted: 4 Jul 2009 Last revised: 11 Jun 2013

See all articles by Robert H. Colson

Robert H. Colson

Grant Thornton LLP

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

Stephen R. Moehrle

University of Missouri at Saint Louis - Accounting Area

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Stephen H. Penman

Columbia Business School - Department of Accounting

Gary Previts

Case Western Reserve University - Department of Accountancy

Thomas L. Stober

University of Notre Dame - Department of Accountancy

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Ross L. Watts

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: July 2, 2009

Abstract

The FASB and the IASB recently issued a joint discussion paper entitled, Preliminary Views on Revenue Recognition in Contracts with Customers. The Boards requested comments on whether their proposed model for revenue recognition would improve the usefulness of the financial statement information for financial decision makers. This paper sets forth the AAA's Financial Accounting Standards Committee's responses to several of the Boards' specific questions. In summary, we support the Boards' proposed comprehensive revenue recognition standard based on the following options: (1) the customer consideration approach (based on initial contract price measurement); (2) no recognition of revenue at contract inception (by assigning the initial contract price to performance obligations); (3) allocation of the transaction price to multiple performance obligations based on the relative stand-alone prices of each performance obligation. We also recommend that the Boards carefully consider the following clarifications as they develop the final exposure draft. The definition of a contract should include the words legally enforceable to describe the contract. A performance obligation must be verifiable. While the transfer of an asset to the customer or the acceptance of a service by the customer normally signals the recognition of revenue, we encourage the Boards to carefully consider situations (like long-term construction or mining) when the completion of intermediate performance obligations could trigger revenue recognition prior to the transfer of title. Absent special consideration of these situations, companies may be forced to re-write contracts in sub-optimal ways in an effort to recognize revenue continuously throughout a long-term construction project or in the process of mining or farming. Consider the difficulties that may arise in allocating the initial transaction price to multiple performance obligation contracts when the individual performance obligations are not normally sold on a stand-alone basis.

Keywords: Financial Accounting Standards Board, International Accounting Standards Board, Revenue Recognition, Contracts

JEL Classification: M40, M41, M44, M47

Suggested Citation

Colson, Robert H. and Bloomfield, Robert J. and Christensen, Theodore E. and Jamal, Karim and Moehrle, Stephen R. and Ohlson, James A. and Penman, Stephen H. and Previts, Gary J. and Stober, Thomas L. and Sunder, Shyam and Watts, Ross L., Response to the Financial Accounting Standards Board's and the International Accounting Standard Board's Joint Discussion Paper Entitled, 'Preliminary Views on Revenue Recognition in Contracts with Customers' (July 2, 2009). Accounting Horizons, Vol. 24, No. 1, 2010; University of Alberta School of Business Research Paper No. 2013-682; Johnson School Research Paper Series No. 37-09. Available at SSRN: https://ssrn.com/abstract=1429041 or http://dx.doi.org/10.2139/ssrn.1429041

Robert H. Colson

Grant Thornton LLP ( email )

Chicago, IL
United States

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)

Theodore E. Christensen (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

Stephen R. Moehrle

University of Missouri at Saint Louis - Accounting Area ( email )

8001 Natural Bridge Road
St. Louis, MO 63121
United States
314-516-6142 (Phone)
314-516-6420 (Fax)

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Stephen H. Penman

Columbia Business School - Department of Accounting ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9151 (Phone)
212-316-9219 (Fax)

Gary J. Previts

Case Western Reserve University - Department of Accountancy ( email )

Cleveland, OH 44106-7235
United States
216-368-2074 (Phone)
216-368-4776 (Fax)

Thomas L. Stober

University of Notre Dame - Department of Accountancy ( email )

Notre Dame, IN 46556-0399
United States
219-631-7614 (Phone)

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Ross L. Watts

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States

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