Similarities
Revenue recognition under both US GAAP and IFRS is tied to the completion of the earnings process and the realization of assets from such completion.
Under IAS 18 Revenue, revenue is defined as “the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity other than increases relating to contributions from equity participants.”
Under US GAAP (which is primarily included in ASC 605 Revenue Recognition), revenues represent actual or expected cash inflows that have occurred or will result from the entity’s ongoing major operations. Under both US GAAP and IFRS, revenue is not recognized until it is both realized (or realizable) and earned.
Ultimately, both GAAPs base revenue recognition on the transfer of risks and both attempt to determine when the earnings process is complete. Both GAAPs contain revenue recognition criteria that, while not identical, are similar. For example, under IFRS, one recognition criteria is that the amount of revenue can be measured reliably, while US GAAP requires that the consideration to be received from the buyer is fixed or determinable.
Significant differences
Despite the similarities, differences in revenue recognition may exist as a result of differing levels of specificity between the two GAAPs.
There is extensive guidance under US GAAP, which can be very prescriptive and often applies only to specific industries. For example, under US GAAP there are specific rules for the recognition of software revenue and sales of real estate, while comparable guidance does not exist under IFRS.
In addition, the detailed US rules often contain exceptions for particular types of transactions. Further, public companies in the US must follow additional guidance provided by the SEC staff.
Conversely, a single standard (IAS 18) exists under IFRS, which contains general principles and illustrative examples of specific transactions. Exclusive of the industry-specific differences between the two GAAPs, following are the major differences in revenue recognition.
Convergence
The FASB and the IASB are currently conducting a joint project to develop concepts for revenue recognition and a standard based on those concepts.
The Boards issued a discussion paper in December 2008 that describes a contract-based revenue recognition approach using the customer consideration model. This model focuses on the asset or liability that arises from an enforceable arrangement with a customer.
The customer consideration model allocates the customer consideration to the contractual performance obligations on a pro rata basis, and revenue is not recognized until a performance obligation is satisfied. The Boards plan to issue an exposure draft in 2010.
In October 2009, the FASB issued ASU 2009-13 Multiple-Deliverable Revenue Arrangements. This revised guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after 15 June 2010. Early adoption is permitted.
The new guidance more closely aligns the accounting requirements for multiple-element arrangements in US GAAP and IFRS by eliminating the requirement for the undelivered elements to have reliable and objective evidence of fair value in order to treat the delivered elements as separate units of accounting.
