EFRAG commented on the IASB ED Revenue from Contracts with Customers

25 April 2012

EFRAG welcomes the IASB's decision to re-expose the proposals, and notes that significant concerns that were raised in EFRAG's comment letter in response to the 2010 ED have been addressed in the revised proposals.

EFRAG still disagrees with the proposals to focus on the transfer of goods and services to a customer when recognising revenue.

The re-exposure has allowed constituents to assess whether the revised requirements provide meaningful revenue information, are easy to understand and can be implemented in practice without unjustified costs or difficulties. To support the IASB’s effort in developing a robust standard for revenue recognition, EFRAG has, in addition to its usual analysis and due process, organised field-tests with participants from industries which it assessed would be most affected by the proposals. The feedback statements from these field-tests constitute and integral part of the comment letter.

EFRAG notes that one overall and significant concern that emerges from this second consultation is that some of the proposed requirements are difficult to understand and lack the clarity necessary for consistent application. EFRAG urges the IASB to ensure that the final requirements can be easily understood and implemented.

EFRAG is particularly concerned that the ED is unclear on whether or not recognition of revenue is always limited to amounts to which an entity is reasonably assured to be entitled. In the view of EFRAG, revenue should always be limited to the amount to which the entity is reasonably assured to be entitled.

EFRAG disagrees with the proposals in the ED to:

• apply the onerous test at the performance obligation level;
• limit the onerous test included in the ED to performance obligations satisfied over a period of time longer than one year;
• disregard the entity’s customary practice of satisfying onerous performance obligations when measuring liabilities resulting from onerous performance obligations;
• include material subsequent changes in estimated credit losses in a line item adjacent to revenue;
• include a requirement to present, as a separate line item adjacent to revenue, the amounts of promised consideration that an entity assesses to be uncollectible because of customer credit risk;
• include a list of specific disclosure requirements in IAS 34 'Interim Financial Reporting';
• include only sales-based variable consideration in the scope of paragraph 85 of the ED;
• restrict the allocation of contingent amounts of consideration to one or to all performance obligations within a contract; and
• require advances received to be offset against contract assets in all circumstances.

In addition, EFRAG is concerned about the cost-benefit effectiveness of the proposed disclosures and for application of the proposed requirements for entities with certain types (for example, telecommunication companies).

Press release

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