Revenue and Expense Recognition
Project Description: The objective of this project is to develop a comprehensive application model for the classification, recognition, and measurement of revenues and expenses. The purpose for developing a comprehensive model is (1) to improve the information regarding revenues and expenses that users receive to make decisions and assess accountability, (2) to provide guidance regarding exchange and exchange-like transactions that have not been specifically addressed, (3) to evaluate revenue and expense recognition in the context of the conceptual framework, and (4) to consider application issues identified in practice, based upon the results of the pre-agenda research on revenue for exchange and exchange-like transactions.
Invitation to Comment redeliberations began June 2018
- Accounting and Financial Reporting Issues
- Project History
- Current Developments
- Work Plan
- Recent Minutes
- Tentative Board Decisions
- Task Force
- Project staff:
Revenue and Expense Recognition—PROJECT PLAN
Exchange Transactions That Are Not Specifically Addressed in Existing Literature
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 GASB's conceptual framework.
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 No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. 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.
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 a nonexchange transaction
- Using the availability period concept consistently across governments
- Applying time and contingency requirements.
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:
- 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 the obligation is fulfilled. Should revenue be recognized at the time of sale or when (or as) the obligation is fulfilled?
- FASB guidance that takes effect in 2018 introduces 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?
- 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?
- 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?
- 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
|Board Meetings||Topics to Be Considered|
|December 2018:||Continue deliberations related to definitions|
|January 2019:||Task force meeting; continue deliberations, as needed|
|February 2019–January 2020:||Deliberations regarding recognition and measurement issues, relevant to the model selected|
|February 2020:||Review first draft of a Preliminary Views|
|March 2020:||Review preballot draft of a Preliminary Views|
|May 2020:||Review ballot draft of a Preliminary Views and consider for approval|
|June–September 2020:||Comment period and field test|
|October 2020:||Public hearings|
|December 2020–July 2021:||Redeliberate classification, recognition, and measurement issues based on due process feedback|
|August 2021:||Task force meeting and continue deliberations, as needed|
|September 2021:||Review first draft of standards section of an Exposure Draft|
|November 2021:||Review preballot draft of an Exposure Draft|
|December 2021:||Review ballot draft and consider an Exposure Draft for approval|
|January–March 2022:||Comment period|
|April–November 2022:||Redeliberate issues based upon due process feedback|
|December 2022:||Review draft standards section of a final Statement|
|February 2023:||Review preballot draft of a final Statement|
|March 2023:||Review ballot draft and consider a final Statement for approval|
Revenue and Expense Recognition—RECENT MINUTES
Minutes of Meetings, November 14−16, 2018
The Board continued its discussion of expenses, focusing on the general characteristics of transactions identified during the August 2018 Board meeting. The Board also discussed donations, endowments, and escheat property in relation to the same general characteristics. No tentative conclusions were reached.
Minutes of Meetings, October 2−4, 2018
The Board discussed different types of primarily federal government grants and the challenges grants present from a classification perspective. The Board also discussed how grants could fit into the general characteristics of revenue transactions discussed during the August 2018 Board meeting. The Board then considered a project staff analysis related to using a specific beneficiary and that rights and obligations articulate in equivalent terms as characteristics of revenue transactions. No tentative conclusions were reached.
Minutes of Meetings, August 22−24, 2018
The Board discussed the conceptual importance of recognition and the challenges associated with the scope and definitions in the Revenue and Expense project that may need to be addressed differently than in other GASB projects. The Board also discussed stakeholder feedback regarding exchange-like transactions. Next, the Board discussed general characteristics of different revenue transactions, including exchange, exchange-like, and nonexchange transactions. This discussion covered existing literature, research, and definitions proposed in the Invitation to Comment, Revenue and Expense Recognition. The Board considered analysis related to cost-recovery, a characteristic of revenue transactions mentioned during public hearings. Finally, the Board considered the rationale for conducting exploratory work about the characteristics of certain grants, a topic that will be addressed in the next Board meeting. No tentative decisions were reached.
Minutes of Meetings, July 10−12, 2018
The Board discussed the development of the project approach and decided to refine the definitions included in each model presented in the Invitation to Comment (ITC), Revenue and Expense Recognition, as a preparatory step for model selection. The Board also discussed stakeholder feedback received in public hearings related to the ITC. No tentative decisions were reached.
Minutes of Teleconference, June 18, 2018
The Board discussed stakeholder feedback received in comment letters related to the Invitation to Comment, Revenue and Expense Recognition. No tentative decisions were reached.
Minutes of Meetings, January 23−24, 2018
The Board reviewed a ballot draft of the Invitation to Comment, Revenue and Expense Recognition, and provided clarifying edits. After reviewing the Invitation to Comment and providing clarifying edits, the Board did not object to the issuance of the Invitation to Comment.
Minutes of Meetings, December 12−14, 2017
The Board discussed the characteristics of the financial information to be presented in the Invitation to Comment. The Board tentatively decided that issues associated with the recognition of revenues and expenses, as well as the revenue and expense recognition models to be presented in the Invitation to Comment, would produce financial information that meets the needs of users; results from economic or financial events affecting the assessment of the governmental reporting entity; is relevant to reporting objectives; and falls within an appropriate information category for general purpose external financial reports. Thus, the Board tentatively concluded that the information in the proposals that the Invitation to Comment would include clearly is within the scope of the GASB’s authority.
Next, the Board tentatively decided a 90-day comment period is appropriate for the Invitation to Comment.
The Board then reviewed a preballot draft of the Invitation to Comment, Revenue and Expense Recognition, and did not object to clarifying edits. The Board did not object to moving forward with a ballot draft of an Invitation to Comment for discussion at the January 2018 meeting.
Revenue and Expense Recognition—TENTATIVE BOARD DECISIONS TO DATE
An Invitation to Comment, Revenue and Expense Recognition, was issued in February 2018.