November 14, 2011 / 3:01 PM / 8 years ago

Revenue rule tweak still bars "free" handset expense

LONDON, Nov 14 (Reuters) - Accounting standard setters have tweaked their proposal for reforming how companies chalk up income from contracts, with phone companies still barred from expensing “free” handsets given to customers.

The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) said on Monday they have altered their joint “revenue recognition” proposal first published last year after nearly 1,000 comment letters.

The aim is for companies across the world to recognise revenue consistently as part of wider efforts to forge a single set of global acccounting rules to help investors.

The core principle that a company must recognise income from contracts when it transfers the goods or services to the customer remains unchanged.

But the proposal has been simplified in parts and contains more guidance after several sectors like construction and telecoms raised concerns.

“Our proposals will give analysts and investors the confidence that revenue is being presented on a consistent basis, across industries and continents,” IASB Chairman Hans Hoogervorst said in a statement.

“We plan to conduct additional outreach with interested parties during the comment period to help people understand the proposed guidance and to listen to any remaining concerns,” said FASB Chairman Leslie Seidman.

The revised proposal still requires telecom companies to recognise income from handsets given to customers as part of a bundled contract for call and data services.

Telecom companies currently expense the “free” handset as part of their marketing costs but the IASB and FASB still insist it is part of a transaction which is paid for.

The construction industry feared having to “slice and dice” their contracts and under the latest changes, the industry would no longer have to account for every single change in the contract.

The new rules will also affect the automotive industry by requiring more precision in pricing parts to include cost of warranties on them.

The new rule will change the recognition of royalties and other payments in pharmaceuticals licensing agreements.

Changes in IT systems and long term compensation agreements are likely for many companies, and mergers and acquisitions will also be affected where the firms have been recognising revenue from contracts at different times.

The latest changes are open to comment until March 2012. (Reporting by Huw Jones; Editing by David Cowell)

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