International accounting standard setter the International Accounting Standards Board (IASB) and its US-focused counterpart the Financial Accounting Standards Board (FASB) finally released a converged standard on the recognition of revenue from contracts with customers.
The two boards have been working together on the project, which harmonizes revenue recognition accounting practices on a global level, since 2008.
According to the FASB, the core principle of the new standard is for companies to recognize revenue “to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services.”
Historically recognition requirements found in international financial reporting standards lacked sufficient detail and were principle based, while the accounting requirements of US GAAP were considered to be overly prescriptive and conflicting in certain areas.
Converging the standards ultimately eliminated “a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance,” said FASB chairman Russell Golden.
“The successful conclusion of this project is a major achievement for both boards,” said Hans Hoogervorst, chairman of the IASB, in a statement.
The new revenue recognition standard will take effect in 2017 but is subject to endorsement by individual jurisdictions.