Executive Summary

1. What Is Revenue?
   1. Revenue versus Gains
      1. U.S. GAAP
   2. IFRS
2. The New Revenue Standard
3. Development of Revenue Guidance
   1. U.S. GAAP
   2. IFRS
4. The Revenue Recognition Project
   1. The New Standards
   2. Project Goals
      1. Customer Loyalty Programs
5. Scope
   1. Scope Exceptions
   2. Example ES.1: Nonmonetary Exchanges to Facilitate Sales to Customers or Potential Customers
   3. Contracts Partially in Scope
   4. Example ES.2: Contract Partially Out of Scope
   5. Sale of Transfer of Nonfinancial Assets
6. Effective Dates
   1. Changes to Effective Dates
      1. U.S. GAAP
      2. IFRS
   2. Other Changes to the Standard
7. Implementation Options
   1. Full Retrospective Approach
   2. Modified Retrospective Approach
8. Objective of the Standard
9. Core Principle and the Five Steps of the Revenue Recognition Model
   1. Example ES.3: Application of the Core Principle Through the Five Steps
10. Disclosures Required by the Standard
    1. Forming and Documenting Professional Judgment
11. Disclosures Required for a New Standard
12. Other Changes Included in the Standard
13. SEC Response
14. Industry-Specific Guidance Superseded
15. AICPA Industry Committees
16. Changes to Industry-Specific Guidance
17. Transition Resource Group
18. Appendix: Status of Issues Brought to the Boards

What Is Revenue?

U.S. GAAP

Revenue: Influx or other enhancement of assets of an entity or settlements of liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. (ASC 606-10-20)

IFRS

Revenue: Income arising in the course of an entity's ordinary activities. (IFRS 15, Appendix A)

Income: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in an increase in equity other than those relating to contributions from equity participants. (IASB Framework)

Revenue versus Gains

U.S. GAAP

The U.S. Financial Accounting Standards Board (FASB) distinguishes revenue from gains. Gains are defined in Statement of Financial Accounting Concept 6 (CON6), Elements of Financial Statements, as

Increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.

Revenue is commonly distinguished from gains in U.S. GAAP for the three reasons listed below.

Exhibit ES.1 Distinguishing between revenue and gains in U.S. GAAP

IFRS

The IASB's definition of income includes revenue and gains. Gains are defined as increases in economic benefits and other items of revenue. They may or may not occur in the ordinary course of business.

The New Revenue Standard1

The revenue recognition standard represents a major milestone in our efforts to improve and converge one of the most important areas of financial reporting. It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance.

-Russell Golden, Chairman of the FASB

The successful conclusion of this project is a major achievement for both boards. Together, we have improved the revenue requirements of both IFRS and U.S. GAAP, while managing to achieve a fully converged standard. Our attention now turns to ensuring a successful transition to these new requirements.

-Hans Hoogervorst, Chairman of the IASB
FASB/IASB Press Release May 28, 2014

In May 2014, the FASB and the IASB jointly issued Revenue from Contracts with Customers as, respectively,

• Accounting Standards Update (ASU) 2014-09 and
• IFRS 15.

Development of Revenue Guidance

Revenue numbers are a critical metric for investors. Revenue recognition has often been a source of restatements and comments from regulators, such as the U.S. Securities and Exchange Commission (SEC). Over the years, regulators have increased their enforcement activities in this area.

U.S. GAAP

Revenue recognition guidance in the U.S. was initially found in

• CON 5, which specifies that an entity should recognize revenue when realized or realizable and earned, and
• CON 6, which defines revenue as inflows or other enhancements of assets and/or settlements of liabilities from delivering goods or services as a result of the entity's ongoing major or central operations.

In 1999, the SEC provided additional guidance to public companies in Staff Accounting Bulletin (SAB) No. 101 (amended in 2003 by SAB No. 104 and codified in Topic 13).

U.S. GAAP related to revenue developed piecemeal, with specific, often industry-related requirements, but also has broad concepts. In some cases, the guidance resulted in different accounting for economically similar transactions. In addition to the guidance in ASC Topic 605, Revenue Recognition, U.S. guidance can be found in numerous pieces of industry-specific guidance, such as that for the software industry, construction contracts, real-estate sales, and multiple-element arrangements. Industry guidance often addressed narrow issues and was not built on a common framework. This led to economically similar transactions being accounted for differently. Even though in the U.S. there were 200 separate pieces of guidance, there were still transactions for which there was no guidance, in particular for service transactions.

IFRS

IFRS does not have as many rules, but the standards can be confusing and difficult to apply, and were sometimes based on different principles. The guidance was limited for some significant topics, like contracts with multiple-element arrangements. This lack of guidance made it difficult to account for some complex transactions. When IFRS guidance was absent, preparers at times turned to industry-specific U.S. literature.

The Revenue Recognition Project

Driven by the need to achieve simplification and consistency, the FASB and the IASB (the Boards) began a joint project in 2002.

The Boards issued an exposure draft (ED) in June 2010 that elicited over 1,000 comment letters. The Boards issued a revised ED in November 2011 and conducted numerous meetings and outreach activities before issuing the final Standard. The basically converged, new Standard is principles based, eliminating the existing transaction- and industry-specific guidance. This move away from prescriptive guidance and bright lines increases the need for professional judgment, which in turn increases the need for expanded disclosures. To compensate for the lack of rules, the revenue standard provides extensive application guidance.

The New Standards

In the U.S., ASU 2014-09

• superseded 200 separate items of FASB Accounting Standards Codification® (ASC) guidance, most of it industry specific
• created Topic 606, Revenue from Contracts with Customers and Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers.
• created Topic 610, Other Income

ASU 2014-09 is over 700 pages long and was released in the following sections:

• Amendments to the FASB Accounting Standards Codification
  • Section A-Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40)
  • Section B-Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables
• Background Information and Basis for Conclusions
  • Appendix: Comparison of Topic 606 and IFRS 15
• Amendments to XBRL Taxonomy.

IFRS 15 replaces the previous standards IAS 11, Construction Contracts and IAS 18, Revenue and several interpretations:

• IFRIC 13, Customer Loyalty Programmes
• IFRIC 15, Agreements for the Construction of Real Estate
• IFRIC 18, Transfers of Assets from Customers
• SIC-31, Revenue-Barter Transactions Involving Advertising Services.

IFRS 15 is over 300 pages long and was released in these sections:

• IFRS 15...