Project Pages

Revenue and Expense Recognition

Project Description: The overall objective of this project is to develop a comprehensive, principles-based model that would establish categorization, recognition, and measurement guidance applicable to a wide range of revenue and expense transactions. Achieving that objective will include: (1) development of guidance applicable to topics for which existing guidance is limited, (2) improvement of existing guidance that has been identified as challenging to apply, (3) consideration of a performance obligation approach to the GASB’s authoritative literature, and (4) assessment of existing and proposed guidance based on the conceptual framework. The expected outcome of the project is enhanced quality of information that users rely upon in making decisions and assessing accountability.

Status:
Preliminary Views Redeliberations

Revenue and Expense Recognition—PROJECT PLAN


Background: This project was prompted by three factors: (1) common exchange transactions that are not specifically addressed in existing GASB literature; (2) the results of the Financial Accounting Foundation’s (FAF) Post-Implementation Review (PIR) of GASB Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions and No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues; and (3) the development of the GASBs conceptual framework.

Exchange Transactions That Are Not Specifically Addressed in Existing Literature

GASB standards provide guidance for revenue recognition for nonexchange transactions in Statements 33 and 36. However, GASB standards provide limited guidance for exchange and exchange-like transactions and that guidance is based on pre-November 30, 1989 Financial Accounting Standard Board (FASB) and the American Institute of Certified Public Accountants (AICPA) pronouncements incorporated through Statement 62. That guidance has not been reexamined and generally has been applied through custom and practice.

Additionally, the FASB recently issued FASB Accounting Standards Codification® (ASC) Topic 606, Revenue from Contracts with Customers. These major changes in the FASB standards offer an opportunity to consider a performance obligation approach to the GASB’s standards. Therefore, the project is considering developing guidance or improving existing guidance on revenue recognition related to:
  • Exchange and exchange-like transactions having single elements
  • Exchange and exchange-like transactions having multiple elements
  • The differentiation between exchange-like and nonexchange transactions.
Post-Implementation Review of Statements 33 and 36

The FAF conducted a PIR of Statements 33 and 36 and published its findings in November 2015. Among those findings, the PIR report showed that Statements 33 and 36: (1) resolved the issues underlying their stated needs, (2) produced decision-useful information for users of financial statements, and (3) could be applied as intended. However, there were areas that could be considered in this project, including:
  • Distinguishing between eligibility requirements and purpose restrictions
  • Determining when a transaction is an exchange or nonexchange transaction
  • Using the availability period concept consistently across governments
  • Applying time and contingency requirements.
Conceptual Framework

Statements 33 and 36 were issued in the 1990s, prior to the completion of key parts of the conceptual framework through the issuance of Concepts Statement No. 4, Elements of Financial Statements, in 2007. Concepts Statement 4 includes the definition of two additional elements in financial statements, deferred inflows and deferred outflows of resources. Therefore, an evaluation of the recognition of nonexchange transactions against the conceptual framework would be necessary.

Accounting and Financial Reporting Issues: The project is addressing the following issues:
  1. Specific guidance for exchange transactions is limited and current guidance indicates revenue from exchange transactions should be recognized when the exchange takes place. Differences in practice have emerged as to whether the exchange takes place when the sale occurs or when the obligation is fulfilled. Should revenue be recognized at the time of sale or when (or as) the obligation is fulfilled?
  2. FASB guidance introduced a performance obligation approach to recognition of revenue. Should the performance obligation approach be used for transactions of a government? Should the approach be used only for exchange transactions? Should the approach be used for both revenue and expenses?
  3. Statements 33 and 36 were issued prior to additional development of the GASB Concepts Statements. Should the guidance be revised in light of the Concepts Statements?
  4. GASB literature contains guidance for certain exchange expenses, such as compensated absences and postemployment benefits. Guidance does not exist for most other common exchange expenses, including salaries and circumstances in which the government is the customer. Should guidance be developed for these exchange expenses?
Project History:
  • Pre-agenda research approved: September 2015
  • Added to current technical agenda: April 2016
  • Task force established? Yes
  • Deliberations began: May 2016
  • Task force meeting held: August 2017
  • Invitation to Comment issued: January 2018
  • Comment period: January–April 2018
  • Public hearings held: May 2018
  • Redeliberations began: June 2018
  • Task force meeting held: May 2019
  • Preliminary Views approved: June 2020
  • Comment period: July 2020–February 2021
  • Public hearings and user forums held: March and April 2021
  • Redeliberations began: May 2021
Current Developments: In July and August 2021, the Board considered topics related to scope and the categorization methodology proposed in the Preliminary Views, Revenue and Expense Recognition.

Work Plan:
 
Board Meetings Topics to Be Considered
September 2021 Redeliberate categorization: binding arrangement.
November 2021 Consider the results of the field test and discuss user forum feedback.
December 2021 Redeliberate categorization: binding arrangement and mutual assent.
January 2022: Redeliberate categorization: mutual assent.
March 2022: Redeliberate categorization: rights and obligations.
April 2022: Redeliberate categorization: interdependence.
May/June 2022: Redeliberate categorization: interdependence and grants.
July 2022: Redeliberate model assumptions and the expense model.
August 2022: Redeliberate the recognition structure, step 1 (increase in net assets) and step 2 (related liability) in revenue recognition.
October 2022: Redeliberate step 1 (decrease in net assets) and step 2 (related asset) in expense recognition.
November 2022: Redeliberate step 3 (deferred inflows of resources and deferred outflows of resources) in revenue and expense recognition.
January 2023 Redeliberate step 4 (revenue recognition) for Category A and Category B revenues: unit of account, series and bundles, imposed and derived.
March 2023 Redeliberate step 4 (revenue recognition) for Category A and Category B revenues: point in time, transfer of control, portfolio approach, contractual Category B revenues.
April 2023 Redeliberate step 4 (revenue recognition) for Category A and Category B revenues: unit of account, series and bundles, imposed and derived.
May 2023 Redeliberate revenue recognition for grants.
July 2023 Redeliberate step 4 (expense recognition) for Category A and Category B expenses: series and bundles, transfer of control, imposed expenses and contractual Category B revenues.
August 2023 Redeliberate step 4 (expense recognition) for Category A and Category B expenses: recognition of series and bundles, portfolio considerations, general aid to governments, and shared revenue.
September 2023 Redeliberate expense recognition for grants.
November 2023 Redeliberate measurement underpinnings.
December 2023 Develop a measurement strategy.
January 2024 Measurement: fixed and variable consideration, monetary and nonmonetary components.
March 2024 Measurement: significant financing component, incentives, advances, discounts, prices concessions.
April 2024 Measurement: collectability and right of return.
May 2024 Measurement allocation.
July 2024 Cases; Task Force meeting.
October 2024 Review a first draft of a standards section; cost-benefit considerations.
November 2024 Review revised draft of a standards section and first draft of a Basis for Conclusions.
February 2025 Review a pre-ballot draft of an Exposure Draft.
March 2025 Review a ballot draft of an Exposure Draft and consider for approval.
April-June 2025 Comment period; public hearings and user forums.
July 2025-March 2027 Redeliberations based on stakeholder feedback.
May 2027 Review a pre-ballot draft of a final Statement.
June 2027 Review a ballot draft of a final Statement and consider for approval.

Revenue and Expense Recognition—RECENT MINUTES


Minutes of Meetings, August 10—12, 2021

The Board continued redeliberations on the Revenue and Expense Recognition project by discussing stakeholder feedback and general considerations on the Preliminary Views, Revenue and Expense Recognition, related to scope.
 
The Board began by discussing the general approach to the scope of the project. First, the Board tentatively decided to retain the scope approach developed in the Preliminary Views, a broad positive scope statement for revenue and expense recognition with the following three scope exclusion principles: (1) guidance related to capital assets or inventory; (2) guidance related to financial instruments; and (3) guidance related to postemployment benefits, compensated absences, or termination benefits. Next, the Board tentatively decided that the scope of the project should not be defined in the context of contracts with customers.
 
The Board continued by discussing stakeholder feedback on Scope Exclusion Principle (1) and tentatively reaffirmed its decision not to include guidance related to capital assets and inventory in the scope of the project. The Board also discussed the possibility of reconsidering decisions with regard to certain capital asset transactions when considering measurement proposals.
 
Next, the Board discussed stakeholder feedback on Scope Exclusion Principle (2) and tentatively reaffirmed its decision not to include guidance related to financial instruments in the scope of the project, except for contracts that meet the normal purchase and normal sales exception as provided in paragraph 14 of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. In addition, the Board tentatively reaffirmed its decision to include transactions with characteristics of both loans and grants in the scope of the project. The Board also tentatively decided to retain consideration provided in the form of a financing component when developing measurement guidance in the project.
 
The Board then discussed stakeholder feedback on Scope Exclusion Principle (3) and tentatively reaffirmed its decision not to include guidance related to postemployment benefits, compensated absences, or termination benefits in the scope of the project. In addition to the three scope exclusion principles, the Board also tentatively proposed to not consider in the scope of the project any guidance issued after Statement No. 65, Items Previously Reported as Assets and Liabilities, or being developed in projects on the Board’s current technical agenda.
 
The Board continued its redeliberations by discussing guidance that had been identified in the Preliminary Views as being in the scope of the project. The Board first discussed guidance related to special assessments and tentatively reaffirmed its decision that revenue and certain expense recognition guidance for special assessments is in the scope of the project; however, the Board tentatively decided that reexamination of Statement No. 6, Accounting and Financial Reporting for Special Assessments, is not considered in scope. Next, the Board tentatively reaffirmed its decision that revenue recognition for escheated property is in the scope of the project, if applicable; however, the Board tentatively decided that reexamination of escheat guidance provided in Statement No. 21, Accounting for Escheat Property, is not considered in scope. The Board then tentatively reaffirmed its decision that the revenue and expense recognition guidance for pass-through grants in paragraph 5 of Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, is in the scope of this project; however, the Board tentatively decided that reexamination of criteria for financial and administrative involvement is not considered in scope.
 
The Board next discussed revenue and expense recognition guidance for exchange and nonexchange transactions. The Board tentatively reaffirmed its decision that the recognition guidance for exchange revenue in paragraphs 23–28 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements, is in the scope of this project. Next, the Board tentatively reaffirmed its decision that the revenue and expense recognition guidance for cable television systems in paragraphs 397 and 398 of Statement 62 is in the scope of this project. Then the Board tentatively reaffirmed its decision that the expense recognition guidance for exchange transactions in paragraph 16 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, is in the scope of this project. Additionally, the Board tentatively reaffirmed its decision that the revenue and expense recognition guidance for nonexchange transactions in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, is in the scope of this project.
 
The Board then tentatively reaffirmed its decision that the contingency guidance in paragraphs 96–113 of Statement 62 is not in the scope of the project.
 
Next, the Board discussed guidance that had been identified in the Preliminary Views as outside the scope of the project. The Board tentatively reaffirmed its decision not to include the guidance for regulated operations in paragraphs 476–500 of Statement 62. Then the Board tentatively reaffirmed its decision not to include the guidance for interfund activity in paragraph 112 of Statement 34 and in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, in the scope of the project.
 
The Board continued its deliberations on scope by discussing topics that are partially in the scope of other guidance and tentatively decided to include the revenue and expense recognition guidance for service components, which was excluded from the scope of Statements No. 87, Leases; No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements; and No. 96, Subscription-Based Information Technology Arrangements.
 
The Board then discussed other scope topics related to the methods of communication as provided in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, and tentatively reaffirmed its decision that topics related to the presentation of revenues and expenses (such as classification of operating and nonoperating revenue or program revenue) are not in the scope of the project. Next, the Board tentatively reaffirmed its decision to exclude topics related to required supplementary information, supplementary information, and notes to financial statements from the scope of the project.
 
The Board tentatively decided to postpone consideration of whether to address guidance for the governmental funds measurement focus and basis of accounting in the project. Lastly, the Board tentatively decided to postpone deciding whether to provide guidance in the project for revenue recognition for certain intangible assets identified as outside the scope of Statement No. 51, Accounting and Financial Reporting for Intangible Assets, and Statements 87, 94, and 96.

Minutes of Meetings, June 30–July 2, 2021

The Board continued deliberations on the Revenue and Expense Recognition project by discussing stakeholder feedback related to the proposed categorization methodology and comprehensive model.

The Board discussed stakeholder feedback recommending the Board revert back to existing guidance and move forward with an exchange/nonexchange classification. The Board tentatively decided to refine and improve the categorization methodology proposed in the Preliminary Views, Revenue and Expense Recognition, paying special attention to the categorization of grants and addressing the concerns raised by stakeholders regarding each of the steps of the categorization.

Minutes of Meetings, May 20–21, 2021

The Board reviewed and discussed feedback from comment letters, public hearings, and user forums related to the Preliminary Views, Revenue and Expense Recognition. The Board agreed to keep the multiple components of the project together at this time. The Board also agreed to redeliberate overarching topics related to categorization and recognition before addressing issues related to measurement. No tentative Board decisions were made regarding the substantive issues of the Preliminary Views.

Minutes of Meetings, October 20-22, 2020

The Board discussed the project deliberation approach for the Revenue and Expense Recognition project. The Board decided to postpone project deliberations, primarily associated with measurement issues, until stakeholder feedback is provided on the Preliminary Views, Revenue and Expense Recognition.

Minutes Archive

Revenue and Expense Recognition—TENTATIVE BOARD DECISIONS TO DATE


The Board tentatively decided the following:

Scope:
  • Scope should be defined as a broad positive statement for recognition and measurement of revenue and expense, with the following three scope exclusion principles:
    • Scope Exclusion Principle 1—not to include guidance related to capital assets and inventory in the scope of the project. As a result, the following pronouncements are outside the scope of the project:
      • Statement No. 18, Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs
      • Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
      • Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations
      • Statement No. 51, Accounting and Financial Reporting for Intangible Assets
      • Statement No. 83, Certain Asset Retirement Obligations
      • Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period.
  • Scope Exclusion Principle 2—not to include guidance related to financial instruments in the scope of the project, except for contracts that meet normal purchase and normal sales exceptions as specified in paragraph 14 of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. As a result, the following pronouncements are outside the scope of the project:
    • Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements
    • Statement No. 7, Advance Refundings Resulting in Defeasance of Debt
    • Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues
    • Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities
    • Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions
    • Statement No. 30, Risk Financing Omnibus
    • Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools
    • Statement No. 40, Deposit and Investment Risk Disclosures
    • Statement No. 52, Land and Other Real Estate Held as Investments by Endowments
    • Statement 53
    • Statement No. 59, Financial Instruments Omnibus
    • Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions
    • Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees
    • Statement No. 72, Fair Value Measurement and Application
    • Statement No. 79, Certain External Investment Pools and Pool Participants
    • Statement No. 86, Certain Debt Extinguishment Issues
    • Statement No. 87, Leases
    • Statement No. 91, Conduit Debt Obligations
    • Statement No. 93, Replacement of Interbank Offered Rates
    • Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements
    • Statement No. 96, Subscription-Based Information Technology Arrangements
    • Interpretation No. 1, Demand Bonds Issued by State and Local Governmental Entities
    • Interpretation No. 3, Financial Reporting for Reverse Repurchase Agreements
    • Interpretation No. 4, Accounting and Financial Reporting for Capitalization Contributions to Public Entity Risk Pools
    • Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements.
  • Scope Exclusion Principle 3—not to include guidance for postemployment benefits, compensated absences, or termination benefits in the scope of the project. As a result, the following pronouncements are outside the scope of the project:
    • Statement No. 16, Accounting for Compensated Absences
    • Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, paragraphs 7–13
    • Statement No. 47, Accounting for Termination Benefits
    • Statement No. 67, Financial Reporting for Pension Plans
    • Statement No. 68, Accounting and Financial Reporting for Pensions
    • Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date
    • Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68
    • Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
    • Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
    • Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans
    • Statement No. 82, Pension Issues
    • Statement No. 85, Omnibus 2017, paragraphs 8–25
    • Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans.
  • In addition to the three scope exclusion principles, guidance issued after Statement 65, including guidance being developed in projects on the Board’s current technical agenda, is outside the scope of the project.
  • The following topics are considered in the scope of the project:
    • Revenue recognition guidance for exchange transactions provided in paragraphs 23–28 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
    • Expense recognition guidance for exchange transactions provided in paragraph 16 of Statement No. 34, Basic Financial Statements —and Management’s Discussion and Analysis —for State and Local Governments
    • Revenue and expense recognition guidance for nonexchange transactions provided in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions
    • Transactions with characteristics of both loans and grants
    • Revenue and certain expense recognition guidance for special assessments (reexamination of Statement No. 6, Accounting and Financial Reporting for Special Assessments, is not considered in scope)
    • Revenue and expense recognition for pass-through grants provided in paragraph 5 of Statement 24 (reexamination of criteria for financial and administrative involvement is not considered in scope)
    • Revenue recognition of escheated property, if applicable (reexamination of escheat guidance provided in Statement No. 21, Accounting for Escheat Property, is not considered in scope)
    • Revenue and expense recognition guidance for cable television systems provided in paragraphs 397 and 398 of Statement 62
    • Revenue and expense recognition guidance of service components excluded from the scope of Statements 87, 94, and 96
    • Consideration provided in the form of a financing component is in the scope developing measurement guidance.
  • The following topics are excluded from the scope of the project:
    • Reexamination of contingency guidance provided in paragraphs 96—113 of Statement 62
    • Guidance for regulated operations provided in paragraphs 476-500 of Statement 62
    • Guidance for interfund activity provided in paragraph 112 of Statement 34 and in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, as well as reclassifying transactions between the primary government and a blended component unit as internal activity
    • Topics related to the presentation of revenues and expenses, such as classification of operating and nonoperating revenue or program revenue
    • Topics related to required supplementary information, supplementary information, and notes to financial statements.
  • Decisions about whether to address the following topics in the scope of the project are postponed:
    • Donation of capital assets
    • Revenue recognition for certain intangible assets out of scope of Statements 51, 87, 94, and 96.
    • Guidance on governmental funds measurement focus and basis of accounting, including guidance provided in paragraphs 62–69 and 70–73 of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles.
  • The scope should not be defined in the context of contracts with customers.
Categorization:
  • The categorization methodology proposed in the Preliminary Views will be refined and improved.