The lofty goal: To develop a single set of high-quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting.

Last month the FASB and IASB issued a progress report on their convergence projects. Although the boards have made a commitment to issue final standards for the items they consider to be most critical (financial instruments, revenue recognition, leases, fair value measurement and statement of comprehensive income), they have put four projects on hold—the most notable being the financial statement presentation project.

Exposure drafts have been issued for all of the priority projects, with revenue recognition currently getting the most attention. Why is this? Of the exposure drafts that have been issued this year as a part of the convergence effort, the proposed standard on revenue recognition from contracts with customers could arguably have the biggest impact on the most companies.

This exposure draft proposes a single principles-based model (we’ve heard it a million times—we’re getting away from a rules-based model!) under which revenue is recognized as the performance obligations in contracts are satisfied.  The obligations are deemed satisfied when control of the promised goods or services is transferred to the customer. The final standard would replace all existing guidance, including all industry-specific guidance. Thirty-six technology companies provided comment letters to the boards during the commenting period deadline. In general, they support the proposed single revenue recognition model.

The following concerns, however, were noted:

  • Recognizing revenue based on an estimated transaction price in a contract that has a variable transaction price may be difficult to apply in practice.
  • Including credit risk as a factor in measuring revenue does not seem appropriate.
  • Retrospective application is a huge undertaking, where the cost of tracking and reporting could outweigh the benefits (two-thirds of those who submitted comment letters disagreed with the full retrospective application of the standard!).

Last month the IASB and FASB held four public roundtable discussions, both in the United States and abroad, to further understand the concerns about the items presented in the exposure draft. We should expect a final standard on revenue recognition by June 30, 2011.

This seems like quite a task for the IASB and FASB to undertake, and there are four other areas for which final standards are due to be issued during 2011 (financial instruments, leases, fair value measurement and statement of comprehensive income). Will the two boards be able to compromise? Will they listen to the concerns of the public?  Will the convergence of the IASB and FASB be a perfect marriage?

Only time will tell! We’ll keep you posted.