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27 October 2010

EFRAG comments on the IASB's Exposure draft revenue from contracts with customers


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EFRAG is concerned that the Exposure draft has been issued without thorough conceptual debate on the importance of revenue recognition. The revenue recognition model as to when control of goods and services is transferred did not find support in EFRAG's comment letter.


In June 2010, the IASB issued an Exposure Draft Revenue from Contracts with Customers (the ED).  The ED is a result of a joint project of the IASB and the FASB, which aims to develop a fully converged revenue standard based on a single set of principles for recognition and measurement that would be applied to revenue-generating activities in contracts with customers.  The ED proposes a single revenue recognition model in which an entity recognises revenue by transferring control over a promised good or service to a customer.

EFRAG welcomes the work being carried out on this subject. Revenue recognition is the cause of some practical problems and a fully converged and simplified standard will be beneficial to financial reporting. However, EFRAG is concerned that the ED has been issued without thorough conceptual debate on why revenue is an important figure, what it should represent and why it provides useful information.
The ED proposes that revenue should be recognised only when control of goods and services is transferred to the customer. EFRAG does not support that model and considers that the IASB has not explained why the proposals would result in useful information.
EFRAG believes that financial statements would be most decision-useful if revenue is considered a measure of the establishment of an irrevocable right to consideration, subject to continued performance, that arises as the entity fulfills a contract with the customer.

Full paper


© EFRAG - European Financial Reporting Advisory Group

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