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28 July 2010

EFRAG's draft comment letter on the IASB's ED revenue from contracts with customers


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EFRAG does not support the control model for revenue recognition proposed in the ED and considers that the IASB has not explained why the proposals would result in useful information. EFRAG believes that financial statements would be most decision-useful.


In June 2010, the IASB issued an Exposure Draft Revenue from Contracts with Customers (the ED). The ED is a result of a joint project of the IASB and the FASB, which aims to develop a fully converged revenue standard based on a single set of principles for recognition and measurement that would be applied to revenue-generating activities in contracts with customers. The ED proposes a single revenue recognition model in which an entity recognises revenue by transferring control over a promised good or service to a customer. 
EFRAG welcomes the work carried out on this subject, but is concerned that the ED has been issued without thorough conceptual debate on why revenue is an important figure, what it should represent and why it provides useful information. 
Overall, EFRAG does not support the control model for revenue recognition proposed in the ED and considers that the IASB has not explained why the proposals would result in useful information. EFRAG believes that financial statements would be most useful, were revenue to be considered a measure of activity carried out to fulfil a contract with a customer. 
However, EFRAG supports some aspects of the proposals in the ED, including the guidance on: combining and segmenting contracts, contracts modifications, and separating performance obligations


© EFRAG - European Financial Reporting Advisory Group

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