A member of the International Accounting Standards Board has added his voice to the calls for a delay in implementation of the new standard on recognizing revenue from contracts with customers.
Both the IASB and the Financial Accounting Standards Board have been considering a delay amid complaints from some companies that they need more time to revamp their practices and systems to put the new standard into effect.
The standard is scheduled to take effect for reporting periods beginning after December 15, 2016, for U.S. public companies, or reporting periods beginning on or after January 1, 2017, for companies that use International Financial Reporting Standards.
[contextly_sidebar id=”KHWm3zL6EhwzPbOob5qr3dYIkqVynGTa”]FASB staff members have been preparing a report on a possible deferral but the Journal of Accountancy reports that IASB member Patrick Finnegan believes a delay is inevitable.
“There’s going to be a delay in the effective date,” Finnegan said at a joint meeting of IASB and the FASB staffs. “… If a company was going to apply this standard and restate three years and try to be ready … they’d have to know the answers to these questions on [Jan. 1, 2015]. And they’re not going to know the answers. So it’s pretty obvious that there’s going to have to be a deferral in light of all these potential changes we’re talking about.”
The new standard, which the boards adopted in May, requires substantial disclosures around revenue, requiring the preparation of computations and data, particularly for companies with long-term contracts. The IASB has been having similar discussions to the FASB’s over whether its rule should be delayed.
According to the JofA, the boards decided Wednesday to propose clarifying certain areas of the standard that are causing implementation problems for some financial statement preparers. The boards’ staffs will draft proposals seeking feedback on potential revisions to the standard’s guidance for licenses of intellectual property and identifying performance obligations.
FASB and the IASB agreed that a clarification should be issued, stating that an entity should not split a sales- or usage-based royalty into a portion subject to the royalties constraint and a portion not subject to the royalties constraint.
FASB Chairman Russell Golden said the boards need to act in situations where there would be widespread diversity in practice. “We should try to resolve the diversity,” he said.