June 24, 2010 / 6:59 PM / 9 years ago

Accounting boards propose revenue recognition rule

* FASB, IASB issue proposal to clarify revenue recognition

* Change expected to affect tech firms, software contracts

* Proposal designed to decrease inconsistencies

* Open for public comment until Oct. 22

By Emily Chasan

NEW YORK, June 24 (Reuters) - U.S. and international accounting rule makers proposed changes to revenue recognition standards that could clear up inconsistencies in the way that companies record sales from contracts with customers around the world.

The U.S. Financial Accounting Standards Board (FASB) and London-based International Accounting Standards Board (IASB) proposed changes jointly on Thursday. Improvement of revenue recognition has been among the key targets for convergence between U.S. and international rules.

Investors had complained that it was difficult to determine whether revenue recognition policies at one company were comparable with its peers or more aggressive, and that policies differed internationally.

For example, many U.S. technology companies have felt they were at a competitive disadvantage, because revenue recognition rules for software contracts differed between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

The proposal intends to align how companies report revenue from contracts with customers, and costs related to those contracts, the boards said in a joint statement.

Under the proposed changes, companies would recognize revenue from a contract with a customer when they have transferred their goods or services to the customer.

“It is an important step towards a single global principle-based standard that would make it absolutely clear when revenue is recognised-and why,” IASB Chairman Sir David Tweedie said in a statement.

The boards said the proposal removes inconsistencies in existing rules, would require more disclosure from companies, clarify accounting for contract costs and improve the comparability between companies and industries.

The change could increase the amount of revenue that tech firms like Apple Inc (AAPL.O) and Palm Inc PALM.O are able to book up front on certain types of products, compared to current rules which force them to book the revenue over time.

The proposal will be open for public comment until Oct. 22, the boards said. (Reporting by Emily Chasan; Editing by Tim Dobbyn)

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