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Revenue Recognition 1

September 30, 2010. Agenda-I. Revenue Recognition 1. Atsu Kato Vice-Chair of the ASBJ Emi Chujo Senior Project Manager of ASBJ. Revenue Recognition Working Group. Lead / Co-Lead Japan / Singapore Working Group Members

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Revenue Recognition 1

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  1. September 30, 2010 Agenda-I RevenueRecognition1 Atsu Kato Vice-Chair of the ASBJ Emi Chujo Senior Project Manager of ASBJ

  2. Revenue Recognition Working Group Lead / Co-Lead Japan / Singapore Working Group Members Australia, China, Indonesia, Hong Kong, Macao, Malaysia and New Zealand

  3. Background • Exposure Draft • “Revenue from Contracts with Customers” • was published by IASB on 24th June, 2010. • WG members found various concerns • on ED. • AOSSG plans to submit our comments and • proposals by the comment letter to IASB. • *”Comment letter (Draft)” and “Results of survey among • WG members” are included in the materials of mtg.

  4. Further Steps After the discussion at the AOSSG meeting, 1) ASBJ will circulate the revised comment letter to all AOSSG members on 4th Oct. 2) AOSSG members will be invited for any additional comments to ASBJ by 11th Oct. 3) ASBJ will send the final comment letter to IASB by 22nd Oct.

  5. Focus Issues • Today, we will focus on… • Identification of Performance • Obligations (Q.2) • Transfer of Control (Q.3) • Customer’s Credit Risk (Q.5) • Allocation of Transaction Price (Q.7) • *Q.# refers to the question number on ED.

  6. I. Identification of Performance Obligations • Key concerns (paragraph 22&23 on ED) • “Distinct” Concept • Reference of “Another Entity” • could result in identifying more PO in par.23(a) than (b). • Only the entity’s own business practice should be considered in applying the “distinct concept”. • Practical Difficulties

  7. II. Transfer of Control • Key concerns • Indicators (paragraph 30 on ED) • should be clarified by: • Prioritization; • Setting the key indicator; • Giving a higher status for “Unconditional obligation to pay”; or • Adding “Risks & Rewards” as indicator

  8. II. Transfer of Control (cont’d) • Key concerns • Construction or • Long-Term Contracts • is the region specific issue. • ASC will present on this issue later.

  9. III. Customer’s Credit Risk • Key concerns • Mixed views on reflecting the customer’s • credit risk • Reduction of Transaction Price • (Paragraph 43 on ED) • VS • Impairment of Receivables • (Some AOSSG members’ proposal)

  10. IV. Allocation of Transaction Price • Key concerns (Paragraph 50 on ED) • Allocation of Discount in Contract • Should any discount be allocated proportionally to the separate PO in the contract?

  11. Thank you !

  12. Appendix Reference to ED

  13. Reference • “Distinct” Notion • ED statesin Paragraph 22: • If an entity promises to transfer more than one good or service, the entity shall account for each promised good or service as a separate performance obligation only if it is distinct....

  14. Reference • Reference of “Another Entity” • ED statesin Paragraph 23: • A good or service, or a bundle of goods or services, is distinct if either: • (a) the entity, or another entity, sells an identical or similar good or service separately; or • (b) the entity could sell the good or service separately because the good or service meets both of the following conditions: • (i) it has a distinct function… • (ii)it has a distinct profit margin…

  15. Reference • Indicators • ED statesin Paragraph 30: • …Indicators that the customer has obtained control of a good or service include the following: • the customer has an unconditional obligation to pay… • the customer has legal title… • the customer has physical possession… • the design or function of the good or service is customer specific…

  16. Reference • Reduction of Transaction Price • ED statesin Paragraph 43: • …In determining the transaction price, an entity shall reduce the amount of promised consideration to reflect the customer’s credit risk....Once an entity has an unconditional right to consideration…, the effects of changes in the assessment of credit risk associated with that right to consideration shall be recognized as income or expense rather than as revenue.

  17. Reference • Single Prescribed Method • ED statesin Paragraph 50: • An entity shall allocate the transaction price to all separate performance obligations in proportion to the standalone selling price of the good or service underlying each of those performance obligations at contract inception (that is, on a relative standalone selling price basis).

  18. Reference • Estimation of Stand-Alone Price • ED statesin Paragraph 51: • The best evidence of a standalone selling price is the observable price of a good or service when the entity sells that good or service separately.... If a standalone selling price is not directly observable, an entity shall estimate it.

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