15 March 2012

EBA commented on the IASB's ED/2011/6 'Revenue from Contracts with Customers'

The EBA is aware of the differences in revenue recognition requirements between US Generally Accepted Accounting Principles (US GAAP) and in International Financial Reporting Standards (IFRS), and therefore welcomes the efforts to achieve consistency of the accounting for revenue recognition.

Application guidance

EBA supports the IASB’s decision to include relevant guidance within IFRS 9, as set out in paragraph D25 of the exposure draft. In addition, EBA is supportive of the intent set out in paragraph 11 concerning dealing with contracts covered by more than one standard.

Definitions

The proposed IFRS for revenue recognition also adjusts the reference in IAS 39 regarding the definition of the effective interest method. EBA understands that the definitions and application guidance in IAS 39 will be transferred to IFRS 9 when IFRS 9 replaces IAS 39.

The removal of the IAS 18 guidance regarding dividends from the proposed standard on revenue recognition could, in case the standard were to be applied before IFRS 9, lead to a lack of accounting guidance for the recognition of dividends (and the related timing). EBA believes that IFRS 9 should be updated to provide clearer guidance on the treatment of dividend income for assets at fair value through profit or loss as well as for those recorded as fair value through other comprehensive income (OCI).

Constraining the cumulative amount of revenue recognised

In EBA’s opinion the concept of "reasonably assured" based on experience and judgement could lead to a situation of inappropriate recognition of revenues. EBA would suggest including guidance to clarify what constitute similar types of performance obligations to ensure some degree of comparability.

Allocation of stand-alone revenue

The proposal reiterates that allocation of the transaction price to the separate performance obligations is based on stand-alone selling prices. However, EBA welcomes that the proposal clarifies that it may be appropriate to estimate a selling price using a residual approach if the price of a good or service is highly variable or uncertain. It is also appreciated that the proposal clarifies when it is appropriate to restrict allocations of discounts, contingent payments and changes in the transaction price to only some promised goods or services.

Customer’s credit risk

EBA welcomes that credit risk is no longer included in the transaction price. The proposal for separate but adjacent presentation of revenue and corresponding amounts that are not expected to be collected should provide a clear and appropriate treatment of these items.

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