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:
Drafting Preliminary Views

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
Current Developments: Since December 2019, the Board has deliberated various recognition proposals for Category A and Category B transactions. The Board also considered measurement issues, including collectability and right of refund.

Work Plan:
 
Board Meetings Topics to Be Considered
June 2020: Review ballot draft of a Preliminary Views and consider for approval.
July 2020–February2021: Comment period and field test (field test will continue through April 2021).
September 2020: Recognition—Transfer of control.
October 2020: Recognition over time and series (percentage of completion).
December 2020: Measurement—Bundles of goods and services.
January 2021: Measurement—Components and variable consideration.
February 2021: Measurement—Allocation.
March–April 2021: Public hearings.
May 2021–November 2022: Redeliberate issues based on due process feedback and deliberate additional potential provisions that will be included in the proposed Statement.
January 2023: Review draft standards section of an Exposure Draft of a proposed Statement.
February 2023: Review illustrations.
May 2023: Review preballot draft of an Exposure Draft of a proposed Statement.
June 2023: Review ballot draft of an Exposure Draft of a proposed Statement and consider for approval.
July–October 2023: Comment period.
November 2023: Public hearings.
December 2023–August 2024: Redeliberate issues based on due process feedback.
September 2024: Review draft final standards section of a final Statement.

Revenue and Expense Recognition—RECENT MINUTES


Minutes of Meetings, May 6–8, 2020

The Board began discussing three terms, binding arrangement, transaction, and recognition unit of account as they relate to the application of the short-term financial resource measurement focus and accrual basis of accounting to transactions in the scope of this project. The Board tentatively decided that the assessment of short-term and long-term items in governmental funds should be made based on the recognition unit of account, which is each performance obligation for Category A transactions.

Next, the Board reviewed and provided clarifying edits on a preballot draft of the Preliminary Views, Revenue and Expense Recognition. The Board then agreed to move forward with a ballot draft of the Preliminary Views, which will be discussed at the June 2020 Board meeting.

Minutes of Meetings, March 24–26, 2020

The Board began deliberations by discussing the recognition of revenue and expense related to certain Category B transactions. The Board tentatively decided to propose five subcategories for Category B transactions: (a) imposed, (b) derived, (c) contractual binding arrangement, (d) general aid to governments, and (e) shared revenue.
 
For general aid to government transactions, the Board tentatively decided to propose that the resource provider and resource recipient recognize liabilities and assets when the payments are due, if (a) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (b) the resource provider has determined that it intends to provide the resources to the resource recipient. Additionally, the Board tentatively agreed to propose that in circumstances in which the resource provider cancels the appropriation, the determination be made based on the resource provider’s intent. That is, if the resource provider decides to postpone the payment, a payable and a receivable should be reported at the end of the fiscal period by the parties. This proposition effectively provides an exception to the first recognition criterion previously noted. Furthermore, if the resource provider decides that the omission is not a postponement, neither a payable nor a receivable should be reported at the end of the fiscal period by the parties.
 
For shared revenue transactions, the Board tentatively decided to propose that, in circumstances in which there is a periodic appropriation, the resource provider and resource recipient recognize liabilities and assets when the payments are due, if (a) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (b) the resource provider has determined that it intends to provide the resources to the resource recipient. The Board also tentatively agreed to propose that, in circumstances in which there is a continuing appropriation, the resource provider and resource recipient recognize liabilities and assets when the underlying transaction that is shared has occurred, if (a) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (b) the resource provider has determined that it intends to provide the resources to the resource recipient. Additionally, the Board tentatively decided to propose that in circumstances in which the resource provider cancels the appropriation, the determination be made based on the resource provider’s intent. That is, if the resource provider decides to postpone the payment, a payable and a receivable should be reported at the end of the fiscal period by the parties. This proposition effectively provides an exception to the first recognition criterion previously noted. Furthermore, if the resource provider decides that the omission is not a postponement, neither a payable nor a receivable should be reported at the end of the fiscal period by the parties.
 
Next, the Board deliberated collectibility in the categorization component and measurement component of the model. The Board reaffirmed its prior decision to not include collectibility in the categorization component either as a scope criterion or as a categorization aspect. The Board also tentatively decided that the installment method and the cost recovery method (footnote 8 of Statement No. 62, Codification of Accounting and Financial  Reporting Guidance Contained in  Pre-November 30, 1989 FASB and AICPA Pronouncements) for revenue recognition would not be carried forward because collectibility is not considered a scope issue. Furthermore, the Board tentatively decided to include existing collectibility guidance for the measurement component in the upcoming due process document (a Preliminary Views), for both Category A and Category B transactions. That is, revenue from both categories would be reported net of uncollectible amounts when there is a related revenue transaction, and no modification would be proposed to the existing relationship between collectibility and contingencies. Additionally, the Board tentatively decided to propose combining existing guidance on collectibility, including raising Category B literature to Category A literature, in the measurement chapter in the upcoming Preliminary Views. Lastly, the Board tentatively decided not to propose modifications to discounts and implied price concessions in the upcoming Preliminary Views; however, the topic would be highlighted in the measurement chapter as an issue that the Board would consider when developing proposed guidance for variable consideration in the next due process document.
 
The Board then discussed the draft materials to be included in the Preliminary Views.

Minutes of Meetings, February 11–13, 2020

The Board began deliberations by discussing the recognition of Category A expense transactions. The Board tentatively decided to propose that expense transactions be recognized over time in circumstances in which one of the two proposed criteria are met: (a) the government simultaneously receives and consumes the benefits provided by the counterparty’s performance as the counterparty performs or (b) the counterparty’s performance does not create a resource with an alternative use to the government, and the counterparty has an enforceable right to payment for performance completed to date. The Board also tentatively decided to propose that expense be recognized at the point in time at which neither of the two proposed criteria above are met. The Board considered an additional over time criterion (consistent with revenue recognition over time) in which the counterparty’s performance would create or enhance an asset such as work in process. The Board tentatively agreed that this criterion is not suitable application guidance for expense recognition over time because it requires capitalization of an outflow, a topic outside the scope of the project. In addition, the Board tentatively agreed to propose that the probability of compliance with grant requirements in the future would not be considered an expense recognition attribute (consistent with its revenue recognition conclusion). The Board tentatively concluded that its rationale is that the flow of resources meets the definition of a receivable (an asset). The assessment of whether the outflow is an expense cannot be made because the compliance with certain grant requirements takes place in the future.

The Board then discussed the organization of the materials to be included in the Preliminary Views.

Minutes of Meetings, January 7–9, 2020

The Board began deliberations by discussing a performance obligation recognition approach and application. The Board tentatively decided to propose that the fulfillment of a performance obligation for both revenue and expense recognition be described as the point at which there is a transfer of control over a resource. The Board then discussed revenue recognition over time or at a point in time. The Board tentatively decided to propose that revenue be recognized over time in Category A revenue transactions in the circumstances in which one of the three proposed criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs; (b) the entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced; (c) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. The Board also tentatively decided to propose that revenue be recognized at the point in time at which control of resources is transferred in Category A revenue transactions in the circumstances in which none of the three proposed criteria above are met. In addition, the Board agreed that recognition guidance for a series of distinct goods or services in Category A revenue transactions should be developed at a later date in conjunction with consideration or allocation of consideration.

The Board tentatively agreed to propose that a practical portfolio consideration be provided for recognition in the assessment of both binding arrangements and performance obligations if the government reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ significantly from applying this guidance to each binding arrangement and to each performance obligation. Additionally, the Board tentatively decided to propose that in circumstances in which it is probable that a provider will not provide the resources or will require a return of resources because eligibility requirements are no longer met or it becomes apparent that a recipient will not comply with purpose restrictions within the specified time limit, the provider recognize a receivable and the recipient recognize a liability, consistent with current provisions in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. The Board also tentatively decided to propose that probability of compliance with grant requirements not be a revenue recognition attribute.

Next, the Board deliberated recognition principles of revenue and expense in Category B transactions. The Board tentatively agreed to propose that the primary criterion for the recognition of revenue or expense in Category B transactions be the time requirements, as defined in Statement 33 and specified in the binding arrangement for the transaction. The Board also tentatively decided to propose that in the absence of time requirements in the binding arrangement related to a Category B transaction, revenue and expense be recognized when the corresponding asset and liability are recognized. For derived Category B transactions, the Board tentatively decided to propose that an asset be recognized when the underlying transaction or activity on which the tax or fee is imposed occurs or when the resources are received, whichever occurs first, and revenue be recognized when the underlying transaction or activity occurs. For imposed Category B property tax transactions, the Board tentatively decided to propose that revenue be recognized in the period for which the tax is imposed. For imposed Category B regulatory fee transactions, the Board tentatively decided to propose that revenue be recognized when the individual or entity commits the act of applying and qualifies for a permit to engage in a regulated activity. For imposed Category B punitive fee transactions, the Board tentatively decided to propose that revenue be recognized when the individual or entity has committed or omitted an act which is a violation of a law for which a punitive fee is prescribed by the governing body’s legislation. For voluntary Category B transactions, the Board tentatively decided to propose that pledges for endowments be recognized as deferred inflows of resources when the promise is established and revenue be recognized when resources are received and the government can begin to comply with time requirements

The Board then discussed measurement topics. The Board reaffirmed its prior decision to base the measurement of revenues and expenses on the most liquid flow; that is, assets in revenue transactions and liabilities in expense transactions. Furthermore, the Board tentatively agreed to propose that measurement of assets and liabilities in the scope of this project be described as relying on the transaction amount. The Board also tentatively agreed to propose that the transaction amount be described as an allocated amount for Category A revenue and expense transactions. Specific provisions related to the allocation methodology will be developed after the upcoming due process document (a Preliminary Views). In addition, the Board tentatively agreed that the provision in Statement 33 requiring disclosure of transactions that are not recognized because they either are not measurable or are not probable of collection not be included in the upcoming due process document. For Category A grants in which each dollar of allowable cost establishes the fulfillment of a performance obligation, the Board tentatively decided to propose that the revenue measurement be based on the established grant reimbursement rate.

Finally, the Board provided feedback about the status of the project with respect to the upcoming Preliminary Views document and also provided feedback on a proposed illustration.

Minutes of Meetings, November 20–22, 2019
 
The Board began deliberations by discussing asset recognition in property tax transactions. The Board tentatively decided to propose that, in property tax transactions, an asset be recognized when the governing body legally enacts the tax, which should be identified as the imposition date. In addition, the Board tentatively decided that the terms lien, levy, and assessment should not be proposed to describe when a legally enforceable claim arises in a property tax revenue transaction. The Board then discussed additional research regarding the categorization of government-mandated transactions and tentatively reconfirmed that those transactions should be proposed as Category B transactions.
 
Next, the Board deliberated recognition principles for expense transactions. For Category A expense transactions, the Board tentatively decided to propose that a liability be recognized when the counterparty has performed an obligation through either action or forbearance. The Board also tentatively agreed to propose that for expenditure-driven grants, the grantor recognize a liability when the grantee has incurred allowable costs, pursuant to all applicable requirements evidenced in an executed grant agreement (the binding arrangement). Additionally, the Board discussed liability recognition for government-mandated and voluntary nonexchange Category B transactions but did not reach any tentative decisions. For Category A expense transactions, the Board tentatively decided to propose that a prepaid asset be recognized when the government provides resources prior to the counterparty’s performance. For Category B expense transactions, the Board tentatively decided to propose that a prepaid asset not be recognized when the government provides resources subject to time requirements or purpose restrictions that have not been fulfilled by the counterparty.
 
The Board continued deliberations by addressing the concept of “applicability to a reporting period” in the broader context of interperiod equity. The Board tentatively agreed to propose that applicability to a reporting period, for transactions in the scope of this project, be defined based on time requirements and fulfillment of a performance obligation. The Board also tentatively decided to propose that applicability to a reporting period not be used to analyze assets or liabilities and that deferred inflows and outflows of resources not be recognized in Category A revenue and expense transactions, in the scope of the project, in either the economic resources measurement focus or the short-term resources measurement focus. The Board also tentatively decided to propose that for Category B revenue and expense transactions, deferred inflows and outflows of resources be recognized based on the existence of time requirements. In addition, the Board tentatively decided to propose that the guidance require an analysis to follow the specific recognition hierarchical path and that, therefore, the elements be assessed for recognition in the prescribed sequential order.
 
Board discussions then turned to principles related to the identification of a recognition unit of account and distinct goods or services. The Board tentatively agreed to propose that a performance obligation in Category A transactions be described as distinct goods or services, which include: (a) distinct goods, such as the purchase of supplies; (b) distinct services, such as the provision of transportation; (c) bundles of goods or services, such as physician care and prescription drugs in patient care; and (d) a series of distinct goods or services, such as the provision or consumption of water or electricity, or the incurrence of allowable costs in expenditure-driven grants. For Category A grants, the Board tentatively decided to propose that the recognition unit of account be explicitly described as “allowable costs incurred in compliance with all grant requirements.”
 
In addition, the Board discussed the performance obligation recognition approach and tentatively agreed to propose that the fulfillment of a performance obligation be described as the point at which there is a transfer of control over a resource or asset.  The Board will determine which term (resource or asset) should be included in the description at a future meeting.
 
Finally, the Board discussed potential modifications to the scope of the project. The Board tentatively decided that guidance for intangibles that is outside the scope of the following pronouncements or projects will be assessed after the upcoming due process document (a Preliminary Views) to determine whether the transactions should be included in the scope of this project: Statement No. 51, Accounting and Financial Reporting for Intangible Assets, Statement No. 87, Leases, Subscription-Based Information Technology Arrangements, and Public-Private Partnerships.

Minutes of Meetings, October 15–17, 2019

The Board began deliberations by discussing the recognition component of the revenue and expense recognition model. The Board reviewed transactions in both Category A and Category B to identify when an increase in net assets, and therefore recognition of the receivable, should occur.
 
Asset recognition in Category A revenue transactions was discussed first by the Board. The Board tentatively decided that assets should be proposed to be recognized when the government has a right to receive by performing either an action (transfer of goods or services) or a forbearance associated with an obligation, or when resources are received prior to performance. The Board also tentatively decided that guidance should not be proposed on the issue of distinguishing between contract assets and receivables, nor should guidance be proposed regarding the recognition of an asset solely based on the payment terms of the binding arrangement. For expenditure-driven grants, the Board tentatively decided to propose that a receivable be recognized when the government has incurred allowable costs pursuant to all applicable compliance requirements established by an executed grant agreement, and no additional consideration be given to the grantor’s resource appropriation.
 
The Board then deliberated asset recognition in Category B revenue transactions. The Board tentatively agreed generally that asset recognition provisions in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, should be proposed to be retained for derived Category B revenues, based on the existence of a legally enforceable claim, with an expanded rationale for the existence of an asset. That is, assets should be proposed to be recognized for derived Category B revenues when the underlying transaction or activity on which the tax or fee is imposed occurs or when the resources are received, whichever occurs first. The Board tentatively decided that the derived tax revenues subcategory should be proposed to be modified as derived Category B revenues to incorporate capital fees.
 
The Board tentatively agreed to propose that asset recognition provisions in Statement 33 be retained for imposed Category B revenues and to expand the rationale for the asset recognition of those transactions. However, the issue of when certain imposed Category B revenues should be recognized (lien date or levy date) will be discussed at a future meeting. In addition, the Board tentatively decided to propose that regulatory fees be considered imposed Category B revenue transactions. The Board also tentatively decided that an asset should be recognized for imposed Category B revenues when the individual or entity engages in, or applies for a permit to engage in, the activity upon which the government has imposed a fee.
 
Deliberations then focused on the four types of eligibility requirements in Statement 33. The Board tentatively decided that required characteristics of recipients should not be considered for the proposed recognition guidance. Furthermore, the Board tentatively agreed that time requirements should not be proposed as asset recognition criteria but should be considered at a later date. Reimbursements, the third type of eligibility requirement, are not applicable to Category B transactions, as expenditure-driven grants have been tentatively identified as Category A transactions. The Board tentatively decided to retain contingencies, the fourth type of eligibility requirement, as a recognition criterion for voluntary Category B revenue transactions.
 
For government-mandated Category B revenue transactions, the Board tentatively agreed to propose that asset recognition occur when the resource provider has appropriated the resources and the corresponding fiscal period has begun. Additionally, the Board tentatively decided to propose that asset recognition for voluntary Category B revenue transactions occur either when the government receives the resources or when a promise is made that is verifiable, measurable, and probable of collection, whichever occurs first; a promise that is probable of collection should have to comply with any pre-established conditions.
 
Next, the Board deliberated recognition for right of return and of liabilities in revenue transactions. The Board tentatively decided to propose guidance for the right of return applicable to both goods and services and that this event be referred to as right of refund. In addition, the Board tentatively agreed that right of refund should be treated in a different manner than the concepts of contravention of purpose restrictions or grant compliance requirements and should not be considered in the proposed categorization step of the model. Furthermore, the Board tentatively decided to propose that right of refund be accounted for as a contingent liability for Category A revenue and should not impact the timing of revenue recognition.
 
Deliberations then moved to whether an increase in net assets should involve recognition of a liability in revenue transactions. Category A revenues were discussed first. The Board tentatively decided that a liability should not be recognized in a wholly unperformed binding arrangement; that is, the Board tentatively agreed to propose that a performance obligation is not always a present obligation. In addition, the Board tentatively agreed that a liability should be recognized for resources received by the government prior to satisfying its performance obligation in a binding arrangement and for refundable and nonrefundable advances provided prior to the government’s entitlement to the resources. The Board tentatively agreed not to propose guidance to identify contract assets and contract liabilities in this project because both items are display issues. For Category A revenue transactions, the Board tentatively agreed not to propose guidance that permits the netting of assets and liabilities in Category A binding arrangements for transactions and other events in the scope of this project. Additionally, the Board concluded that guidance related to agency relationships is provided in Statement No. 84, Fiduciary Activities, and, therefore, should not be considered within the scope of this project. Consequently, the Board tentatively agreed not to propose permitting the netting of revenues and expenses.
 
Next, the Board discussed liability recognition in Category B revenue transactions. The Board tentatively decided to propose that liability recognition provisions in Statement 33 be retained for resources provided in advance for derived Category B revenue transactions, with expanded rationale for the existence of a liability. That is, a liability should be recognized in derived Category B revenue transactions when resources are provided to a government before the underlying transaction occurs, which is the point when the government is entitled and has a legally enforceable claim to them. For imposed Category B revenues, the Board also tentatively agreed to propose that recognition provisions in Statement 33 be expanded to address recognition of advances as liabilities for resources received before the date on which the government imposes the tax or fee and has a legally enforceable claim to them.
 
Furthermore, the Board tentatively decided to propose that a liability be recognized for assets received as advances in voluntary Category B revenue transactions. For government-mandated and voluntary Category B revenue transactions, the Board tentatively decided to propose that a liability not be recognized for purpose restrictions placed on assets received to which the government already has established a legally enforceable claim; that is, assets recognized by the government as a receivable that are purpose-restricted should not be recognized as a liability. Additionally, the Board tentatively agreed to propose that the provisions in Statement 33 be modified to acknowledge the existence of unrestricted government-mandated revenue transactions. The Board also tentatively decided to propose that a liability not be recognized for assets that have time requirements (after a legally enforceable claim to the resources has been raised). Regarding advances, the Board also tentatively decided that a definition should be developed and proposed that describes the circumstance in which a government receives resources before it has a legally enforceable claim, with the intent to clarify that those resources should always be recognized as liabilities.
 
Finally, the Board discussed recognition unit of account, which informs the level of aggregation or disaggregation at which rights and obligations would be identified for Category A recognition. The Board tentatively decided to propose that the recognition unit of account in Category A binding arrangements be a performance obligation.

Minutes of Meetings, August 27–28, 2019
 
The Board began deliberations by evaluating the application of the categorization component of the proposed model to three revenue and expense transactions. The Board discussed observations on the categorization of various government-mandated transactions and requested additional research. The Board tentatively decided that payment in lieu of taxes (PILOT) programs generally should be identified as Category B transactions, although each PILOT program should be assessed independently because certain PILOT programs can be more representational of a fee-for-service-type arrangement. The Board also tentatively agreed that escheat revenues should be identified as Category B transactions.
 
The Board then discussed moral and constructive obligations and their relationship to the categorization component of a revenue and expense recognition model. The Board tentatively decided that both the rebuttable presumption of enforceability and recourse available for enforceability mechanisms beyond a court of law allow sufficient flexibility to include moral and constructive obligations within the scope of the project, such that the current model proposal does not require modification to encompass these transactions.
 
Finally, the Board deliberated the level at which the categorization component of the model should be applied. The Board tentatively agreed that the categorization assessment should be made at the binding arrangement level, except for circumstances in which there is potential for multiple transactions within the binding arrangement to be assessed in different categories. In addition, the Board tentatively decided that categorization should be reassessed only when the terms and conditions of a binding arrangement have significantly changed. The Board also tentatively agreed that categorization may be applied to a portfolio of binding arrangements with similar characteristics, if a government reasonably expects that the effects of the portfolio assessment would not differ from those of the categorization application to the individual binding arrangements.

Minutes of Meetings, July 16–18, 2019
 
The Board began deliberations by further defining concepts in the categorization component of the revenue and expense recognition model. The Board tentatively decided not to include the characteristic of voluntary in the proposed categorization methodology. Additionally, the Board tentatively agreed not to include collectibility or the type of remedy available for the breach of an agreement proposal in the categorization component of the model. In addition, the Board tentatively agreed to rely on the general terms government and counterparty in the proposal to identify parties to a transaction, rather than developing terms to specifically identify parties to transactions.
 
The Board tentatively decided that forbearance, as an obligation to perform, should be proposed to be described as a promise to forgo exercising a right in exchange for consideration, such that a dependent relationship exists between the forbearance and the consideration, and remedies exist in the case of breach.

The Board also tentatively decided that economic substance should be proposed to be described as an expected change in the risk, amount, or timing of the government’s cash flows or an impact on the government’s service potential. To describe arrangements in the scope of this project, the Board tentatively agreed to retain the term binding arrangement in the proposal and not rely on the term valid.

The proposed structure for the categorization component of the model was tentatively agreed to by the Board as having four operable steps: identification of a binding arrangement, mutual assent between the parties of capacity, identification of the parties’ substantive rights and obligations, and interdependency between those rights and obligations.
 
Next, the Board discussed an application of the proposed categorization component to a variety of revenue and expense transactions. The Board tentatively agreed that the following transactions should be identified as Category A: eligibility-driven grants, research grants, revolving loans, Medicaid fee-for-service programs, fees for specific services, labor costs, and purchase orders and contracts; and the following transactions should be identified as Category B: taxes, special assessments, regulatory fees, punitive fees, donations, purpose-restricted grants, Medicaid supplementary payments, capital fees, and individual assistance.
 
The Board then reviewed various topics to be included in the measurement component of the proposed model. The Board tentatively agreed to a base measurement proposal wherein revenues and expenses are measured indirectly through the more liquid item, such as cash, payables, and receivables.
 
The Board tentatively decided to remove from the scope of the project all capital asset transactions, including purchases, sales, donations, and nonmonetary exchanges of capital assets. Additionally, the Board tentatively agreed to remove guidance for in-kind contributions, contributed services, and nonmonetary interlocal agreements (or services for services) from the scope of the project.  Those topics will be considered in potential future projects of the Board.
 
Finally, the Board deliberated the topics of contract incentives and collectibility within the measurement component of the revenue and expense recognition model. The Board tentatively decided to propose defining contract incentives in the same manner as lease incentives and to measure variable or contingent contract incentives in the same manner as other variable or contingent consideration, for which measurement will be discussed at a subsequent meeting. From the perspectives of either a government recognizing revenue or incurring expense in a transaction as a whole, the Board tentatively agreed to propose that fixed (or fixed in substance) contract incentives be included in the transaction amount. Regarding the topic of collectibility, the Board tentatively decided to propose that existing collectibility guidance in Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which requires revenue to be recorded net of estimated uncollectible amounts, be carried forward for both Category A and Category B transactions. The Board also tentatively concluded that collectibility guidance similar to the Financial Accounting Standards Board guidance on current expected credit losses should not be developed in this project.

Minutes of Meetings, June 5–6, 2019
 
The Board began deliberations by reviewing feedback provided at the May meeting of the Revenue and Expense Recognition Task Force. The Board discussed feedback from task force members related to the project objective and scope, the ITC models, the proposed AB Model, interperiod equity and deferred inflows and outflows of resources, and stakeholder communications.
 
Next, the Board discussed the continued development of the categorization component of the proposed AB Model. The Board tentatively decided to propose that all binding arrangements in the scope of the project be valid by meeting two requirements. To be valid, a binding arrangement should (a) contain a rebuttable presumption of enforceability and (b) have economic substance. In addition, the Board tentatively decided to propose that Category A binding arrangements be further evidenced by mutual assent to the transaction between the parties of the transaction and a requirement that the parties can identify their rights and obligations, which are substantive. The Board tentatively decided to propose that Category A transactions be required to have rights and obligations that are interrelated in such a manner that each is dependent on the existence of the other. Additionally, a remedy should exist for circumstances in which either party fails to meet the terms of the binding arrangement. That proposed requirement would clarify the previously used phrase “rights and obligations that articulate in equivalent terms.”
 
The Board tentatively agreed to propose that Category B binding arrangements are those that meet the requirements for validity but fail to meet any of the additional Category A characteristics.
 
The Board continued deliberations by further refining the proposed characteristic of rights and obligations in Category A transactions.

Minutes Archive

Revenue and Expense Recognition—TENTATIVE BOARD DECISIONS TO DATE


Model Assumptions

The Board tentatively decided to propose the following model assumptions:
  1. Inflows and outflows are of equal importance in resource flows statements.
  2. Inflows and outflows should be classified independently, and not in relationship to each other.
  3. The government is an economic entity and not an agent of the citizenry.
  4. Symmetrical considerations, to the extent possible, should be included in revenue and expense recognition.
  5. A consistent viewpoint, from the resource provider perspective, will be applied in the revenue and expense analysis.
The AB Model

The Board tentatively agreed to the following model development proposals related to categorization:
  1. To develop a model in which revenue and expense transactions would be organized into two categories: Category A and Category B (the AB Model). While the concepts included in the tentative descriptions of Category A and Category B are foundational to the model development, the concepts require further refinement.
    1. Category A transactions should be considered as comprised of two flows, an acquisition coupled with a sacrifice (or a sacrifice coupled with an acquisition). The acquisition coupled with the sacrifice can be identified as rights and obligations that articulate in equivalent terms; that is, the rights and obligations are dependent on the existence of each other, such that there is a remedy for failure of either party to meet the terms of the arrangement. While the right represents the right to receive consideration in a transaction, the obligation represents the requirement to perform via action or inaction. Category A transactions may include reciprocal and nonreciprocal transactions. Binding arrangements in Category A transactions include contracts, grant agreements, memorandums of understanding, interlocal agreements, and legally enforceable purchase orders.
    2. Category B transactions should be considered as comprised of a single flow, that is an acquisition without a sacrifice or a sacrifice without an acquisition. The obligation would represent the requirement to provide resources. The right would represent the ability to receive or collect resources. Binding arrangements associated with Category B transactions include enabling legislation and purpose-restricted grants.
    3. To refine these descriptions, the Board should rely on two characteristics identified in the exploratory work: (1) the binding arrangement and (2) rights and obligations that articulate in equivalent terms.
      1. The binding arrangement should:
        1. Have a rebuttable presumption of enforceability
        2. Have economic substance.
    4. Category A binding arrangements should include:
      1. Mutual assent between the parties of capacity in the transaction
      2. Identification of rights and obligations, which are substantive, by the parties to the transaction
      3. Dependency of the rights and obligations in the binding arrangement on the existence of each other.
    5. Category B binding arrangements should be identified as those that fail any of the Category A characteristics.
    6. The terms government and counterparty should be used to describe parties to a transaction, rather than developing terms for specific identification of the parties.
    7. Forbearance, as an obligation to perform, should be described as a promise to forgo exercising a right in exchange for consideration, such that a dependent relationship exists between the forbearance and the consideration, and remedies exist in the case of breach.
    8. The term binding arrangement should be retained to describe arrangements in the scope of this project.
    9. Economic substance should be described as an expected change in the risk, amount, or timing of the government’s cash flows or an impact on the government’s service potential.
    10. The rebuttable presumption of enforceability and recourse available beyond a court of law allow for moral and constructive obligations to be within the scope of the project.
  2. The structure of the categorization component of the model should be proposed as having the following four steps:
    1. Identification of a binding arrangement, as evidenced by both a rebuttable presumption of enforceability and economic substance, in order for the binding arrangement to be in the scope of the project
    2. Mutual assent between the parties of capacity, as evidenced by mutual approval of the terms and conditions of the arrangement between parties that have authority to enter into the transaction on behalf of the government or its counterparty
    3. Identification of the parties’ substantive rights and obligations, which are in the form of a right to consideration or an obligation to perform, including action or inaction (forbearance), and are identifiable for both the government and the counterparty to the transaction
    4. Interdependency between those rights and obligations, such that the obligations are dependent on the rights, the rights are dependent on the obligations, and a remedy exists in case of noncompliance by one of the parties.
  3. The following transactions should be identified as Category A transactions:
    1. Fees for specific services, such as water fees, tuition fees, transit fares, and lottery tickets
    2. Eligibility-driven grants
    3. Research grants
    4. Revolving loans
    5. Medicaid fee-for-service programs
    6. Labor costs
    7. Purchase orders and contracts
  4. The following transactions should be identified as Category B transactions:
    1. Taxes
    2. Special assessments
    3. Regulatory fees, such as professional licenses, building permits, or drivers’ licenses
    4. Punitive fees, such as fines, penalties, and forfeitures
    5. Donations
    6. Purpose-restricted grants
    7. Medicaid supplementary payments
    8. Capital fees, such as passenger facility charges, developer fees, or wastewater impact fees
    9. Individual assistance.
    10. Payment in lieu of taxes (PILOT) programs, in general (each program should be independently assessed to ensure proper categorization)
    11. Escheat revenues
    12. Government-mandated transactions.
  5. Category B transactions should be organized into five subcategories as follows:
    1. Imposed Category B
    2. Derived Category B
    3. Contractual binding arrangement
    4. General aid to governments
    5. Shared revenue
  6. The categorization assessment should be applied at the binding arrangement level, except for circumstances in which there is potential for multiple transactions in the binding arrangement to be categorized in different categories.
  7. Categorization should be reassessed when the terms and conditions of a binding arrangement have changed significantly.
  8. Categorization may be applied to a portfolio of binding arrangements with similar characteristics, if a government reasonably expects that the effects of the portfolio assessment would not differ from those of the categorization application to the individual binding arrangements.
  9. Right of refund should not be considered in the categorization assessment.
  10. To move away from the following characteristics identified during the exploratory work. The Board tentatively agreed not to rely on:
    1. Service relatable or distinct goods or services in any categorization definition
    2. Specific beneficiary in any categorization definition
    3. The characteristic of cost recovery as a distinguishing characteristic of revenue and expense transactions
    4. The characteristic of benefit as a distinguishing characteristic of revenue and expense transactions
    5. Value to develop categorization definitions
    6. Consideration as a means to categorize revenue and expense transactions.
    7. The characteristic of voluntary in the categorization component of the model
    8. Collectibility in the categorization component of the model
    9. The type of remedy available for a breach of an agreement in the categorization component of the model.
  11. The earnings recognition approach should no longer be considered in this project.
The Board tentatively agreed to the following model development proposals related to recognition:
  1. Revenue recognition is broadly composed of the following four steps:
    1.  First, identify whether there is an increase in an asset (increase in net assets
    2. Second, identify whether the asset results in a related liability
    3. Third, identify whether the asset results in a related deferred inflow of resources
    4. Fourth, recognize revenue.
  2. Expense recognition is broadly composed of the following four steps:
    1. First, identify whether there is an incurrence of a liability (decrease in net assets)
    2. Second, identify whether the liability results in a related asset
    3. Third, identify whether the liability results in a related deferred outflow of resources
    4. Fourth, recognize expense.
  3. With those four recognition steps:
    1. Guidance should require that analysis follows the specific hierarchical path and that, therefore, the elements should be assessed in the prescribed sequential order.
    2. A definition for advances should be developed to describe the circumstance in which a government receives resources before a government has a legally enforceable claim in both revenue categories, with the intent to clarify that those resources should always be recognized as liabilities.
    3. Guidance permitting netting of assets and liabilities for transactions and events in the scope of this project should not be permitted.
    4. Guidance permitting netting of revenues and expenses for transactions and events in the scope of this project should not be permitted.
    5. The recognition unit of account in Category A binding arrangements should be a performance obligation for both revenues and expenses.
      1. A performance obligation should be described as distinct goods or services, which include:
        1. Distinct goods, such as the purchase of supplies
        2. Distinct services, such as the provision of transportation
        3. Bundles of goods or services, such as physician care and prescription drugs in patient care
        4. A series of distinct goods or services, such as the provision or consumption of water or electricity, or the incurrence of allowable costs in expenditure-driven grants.
      2. The recognition unit of account for Category A grants should be explicitly described as “allowable costs incurred in compliance with all grant requirements.”
      3. The assessment of short-term and long-term items in governmental funds should be made based on the recognition unit of account for Category A transactions, which is each performance obligation.
    6. Recognition guidance for a series of distinct goods or services in Category A revenue transaction should be developed at a later date in conjunction with consideration or allocation of consideration.
    7. The fulfillment of a performance obligation for both revenue and expense recognition should be described as the point at which there is a transfer of control over a resource.
    8. Eligibility requirements, as provided in paragraph 20 of Statement 33, should be adjusted to reflect the needs of Category B transactions as follows:
      1. Required characteristics of recipients should not be considered for any recognition guidance.
      2. Time requirements
        1. Should be retained to address recognition of deferrals and revenue and expense
        2. Should not be considered in asset recognition
        3. Do not impose a present obligation and, therefore, are not liabilities.
      3. Reimbursement requirements are not applicable to Category B transactions, as all expenditure-driven grants have been tentatively identified as Category A transactions.
      4. Contingencies are retained to address recognition of voluntary Category B revenues.
    9. In circumstances in which it is probable that a provider will not provide the resources or will require a return of resources because eligibility requirements are no longer met or it becomes apparent that a recipient will not comply with purpose restrictions within the specified time limit, the provider should recognize a receivable and the recipient should recognize a liability.
    10. Probability of compliance with grant requirements should not be a revenue recognition attribute.
    11. Applicability to a reporting period, for transactions in the scope of this project, should be defined based on time requirements and fulfillment of a performance obligation.
      1. Applicability to a reporting period should not be used to analyze assets or liabilities.
    12. A practical portfolio consideration should be provided for recognition of revenues and expenses in both binding arrangements and performance obligations if the government reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ significantly from applying this guidance to each binding arrangement and to each performance obligation.
    13. The primary criterion for the recognition of revenue or expense in Category B transactions should be the time requirements, as defined in Statement 33 and specified in the binding arrangement for the transaction.
      1. In the absence of time requirements in the binding arrangement related to a Category B transaction, revenue and expense should be recognized when the corresponding asset and liability are recognized.
  4. Category A revenue recognition:
    1. Assets should be recognized when the government has a right to receive by performing an obligation through either action (transfer of goods or services) or forbearance, or when resources are received prior to performance.
    2. Assets should not be recognized solely based on the payment terms of the binding arrangement.
    3. For expenditure-driven grants, a receivable should be recognized when the government has incurred allowable costs pursuant to all applicable compliance requirements established by an executed grant agreement.
    4. A liability should not be recognized in a wholly unperformed binding arrangement; that is, a performance obligation is not a present obligation.
    5. A liability should be recognized for resources received by the government prior to satisfying its performance obligation (advances) in a binding arrangement. Those resource represent a present obligation to perform or are refundable.
      1. Nonrefundable advances are also liabilities.
    6. Deferred inflows of resources should not be recognized in Category A revenue transactions, in the scope of this project, in either the economic resources measurement focus or the short-term resources measurement focus.
    7. Revenue should be recognized over time in Category A revenue transactions in the circumstances in which one of the three proposed criteria below are met:
      1. The counterparty simultaneously receives and consumes the benefits provided by the government’s performance as the government performs.
      2. The government’s performance creates or enhances an asset (for example, work in process) that the counterparty controls as the asset is created or enhanced.
      3. The government’s performance does not create a resource with an alternative use to the government, and the government has an enforceable right to payment for performance completed to date.
    8. Revenue should be recognized at the point in time at which control of resources is transferred in Category A revenue transactions in the circumstances in which none of the three proposed criteria above are met.
  5. Category B revenue recognition:
    1. Subcategories identified in Statement 33 should be retained for recognition purposes of Category B transactions.
      1. Asset recognition provisions in Statement 33 generally should be retained; that is, based on the existence of a legally enforceable claim, with an expanded rationale for the existence of an asset.
      2. Deferred inflows and outflows of resources should be recognized based on the existence of time requirements.
    2. Derived Category B revenue
      1. Assets should be recognized for derived Category B revenues when the underlying transaction or activity on which the tax or fee is imposed occurs or when the resources are received, whichever occurs first.
      2. Capital fees such as passenger facility charges and impact fees have been tentatively identified as derived Category B transactions.
      3. Resources received before the underlying transaction occurring should be recognized as liabilities.
      4. Revenue should be recognized for derived Category B transactions when the underlying transaction or activity on which the tax or fee is imposed occurs.
    3. Imposed Category B revenue
      1. Asset recognition for property taxes should occur when the governing body approves the imposition of the tax; that point should be identified as the "imposition date." The terms lien, levy, and assessment should not be used to describe when a legally enforceable claim arises in a property tax revenue transaction.
      2. Asset recognition for imposed Category B revenues should occur when the individual or entity engages in, or applies for a permit to engage in, the activity upon which the government has imposed a fee.
      3. Regulatory fees and special assessments should be considered imposed Category B revenue transactions.
      4. Resources received before the government has a legally enforceable claim should be recognized as a liability.
      5. Revenue recognition for imposed Category B property tax transactions should occur in the period for which the tax is imposed.
      6. Revenue recognition for imposed Category B regulatory fee transactions should occur when the individual or entity commits the act of applying and qualifies for a permit to engage in a regulated activity.
      7. Revenue recognition for imposed Category B punitive fee transactions should occur when the individual or entity has committed or omitted an act that is a violation of a law for which a punitive fee is prescribed by the governing body’s legislation.
    4. Contractual binding arrangement revenue
      1. Asset recognition for voluntary Category B revenue transactions should occur either when the government receives the resources or when a promise is made that is verifiable, measurable, and probable of collection, whichever occurs first. A promise that is probable of collection should have to comply with any pre-established conditions.
        1. Pledges should be recognized as assets whether pledged to an endowment or for other purposes.
      2. A liability should be recognized for assets received as advances in voluntary Category B revenue transactions, which infrequently occurs in certain PILOT programs when a not-for-profit provides resources to a government before a binding arrangement is established.
      3. Pledges for endowments should be recognized as deferred inflows of resources when the promise is established; revenue should be recognized when resources are received and the government can begin to comply with time requirements.
    5. General aid to government revenue
      1. Asset recognition by the resource recipient for general aid to governments revenue transactions should occur when the payments are due, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      2. In circumstances in which the resource provider cancels the appropriation, the determination should be made based on the resource provider’s intent:
        1. If the resource provider decides to postpone the payment, a receivable should be reported at the end of the fiscal period by the resource recipient.
        2. If the resource provider decides that the omission is not a postponement, a receivable should not be reported at the end of the fiscal period by the resource recipient.
      3. A liability should not be recognized in shared revenue or general aid to governments revenue transactions for purpose restrictions placed on assets received to which the government already has established a legally enforceable claim
    6. Shared Revenue
      1. In circumstances in which there is a periodic appropriation, asset recognition by the resource recipient for shared revenue transactions occur when the payments are due, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      2. In circumstances in which there is a continuing appropriation, the resource recipient should recognize assets when the underlying transaction that is shared has occurred, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      3. In circumstances in which the resource provider cancels the appropriation, the determination should be made based on the resource provider’s intent:
        1. If the resource provider decides to postpone the payment, a receivable should be reported at the end of the fiscal period by the resource recipient.
        2. Asset recognition for government-mandated Category B revenue transactions should occur when the resource provider has appropriated the resources and the corresponding fiscal period has begun. 
  6. Category A expense recognition:
    1. Liabilities should be recognized when the counterparty has performed its obligation through either action or forbearance.
      1. For expenditure-driven grants, the grantor should recognize a liability when the grantee has incurred allowable costs, pursuant to all applicable requirements evidenced in an executed grant agreement (the binding arrangement).
    2. A prepaid asset should be recognized when the government provides resources prior to the counterparty’s performance.
    3. Deferred outflows of resources should not be recognized in Category A expenses, in the scope of this project, in either the economic resources measurement focus or the short-term resources measurement focus.
    4. Expense should be recognized over time in circumstances in which one of the two criteria below are met:
      1. The government simultaneously receives and consumes the benefits provided by the counterparty’s performance as the counterparty performs.
      2. The counterparty’s performance does not create a resource with an alternative use to the government, and the counterparty has an enforceable right to payment for performance completed to date.
    5. Expense should be recognized at the point in time at which neither of the two criteria above are met.
  7. Category B expense recognition:
    1. A prepaid asset should not be recognized when the government provides resources subject to time requirements or purpose restrictions that have not been fulfilled by the counterparty.
    2. Deferred outflows of resources should be recognized based on the existence of time requirements.
    3. General aid to governments
      1. Liability recognition by the resource provider for general aid to governments revenue transactions occur when the payments are due, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      2. In circumstances in which the resource provider cancels the appropriation, the determination should be made based on the resource provider’s intent:
        1. If the resource provider decides to postpone the payment, a liability should be reported at the end of the fiscal period by the resource provider.
        2. If the resource provider decides that the omission is not a postponement, a liability should not be reported at the end of the fiscal period by the resource provider.
    4. Shared Revenue
      1. In circumstances in which there is a periodic appropriation, liability recognition by the resource provider for shared revenue transactions occur when the payments are due, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      2. In circumstances in which there is a continuing appropriation, the resource provider recognizes liabilities when the underlying transaction that is shared has occurred, if (1) the resource provider has appropriated funds for the provision of resources, and the period applicable to the appropriation has begun, and (2) the resource provider has determined that it intends to provide the resources to the resource recipient.
      3. In circumstances in which the resource provider cancels the appropriation, the determination should be made based on the resource provider’s intent:
        1. If the resource provider decides to postpone the payment, a liability should be reported at the end of the fiscal period by the resource provider
        2. If the resource provider decides that the omission is not a postponement, a liability should not be reported at the end of the fiscal period.
  8. The provision in Statement 33 requiring disclosure of transactions that are not recognized because they either are not measurable or are not probable of collection should not be included in the upcoming due process document (a Preliminary Views).
The Board tentatively agreed to the following model development proposals related to measurement:
  1. For transactions in which there is a liquid resource, a formalization of current measurement guidance should be followed wherein revenues and expenses are measured indirectly through the more liquid item, such as cash, payables, and receivables.
  2. Measurement of assets and liabilities in the scope of this project should be described as relying on the transaction amount.
    1. The transaction amount should be described as an allocated amount for Category A revenue and expense transactions. The allocation methodology will be developed after the upcoming due process document (a Preliminary Views).
  3. Contract incentives should be defined in the same manner as lease incentives.
  4. Variable or contingent contract incentives should be measured in the same manner as other variable or contingent consideration, which are topics to be discussed at a subsequent meeting.
  5. From the perspective of a government recognizing revenue in a transaction, fixed (or fixed in substance) contract incentives should be included in the transaction amount.
  6. From the perspective of a government incurring expense in a transaction, fixed (or fixed in substance) contract incentives should be included in the transaction amount.
  7. A “probable of collection” threshold for revenue recognition should be considered implicit in the definition of a binding arrangement.
  8. Existing collectibility guidance in Statements 33 and 62 should be carried forward, which requires revenue to be recognized net of estimated uncollectible amounts, for both Category A and Category B transactions.
    1. Existing guidance on collectibility would be presented in the measurement chapter in the upcoming due process document (a Preliminary Views)
  9. Collectibility guidance similar to the Financial Accounting Standards Board’s current expected credit losses guidance should not be developed in this project.
  10. Discounts and implied price concessions issues will be considered when developing guidance for variable consideration in the next due process document.
  11. Right of refund (applicable to both goods and services) is a measurement issue and should not impact the timing of revenue recognition, nor would it impact contravention of purpose restrictions or grant compliance requirements.
    1. Right of refund should be recognized as a liability following existent contingency guidance.
  12. For Category A grants in which each dollar of allowable cost establishes the fulfillment of a performance obligation, the revenue measurement should be based on the established grant reimbursement rate.
Scope

The Board tentatively agreed to propose the following scope description:

The scope of the project includes classification, recognition, and measurement of revenues and expenses from a broad range of transactions, unless those transactions have been explicitly excluded from the scope of the project via one of the three exclusionary principles:
  1. Certain Assets (Capital and Inventory) and Certain Long-Term Liabilities Exclusion—this exclusion would remove from the scope of the project capital asset transactions, including purchases, sales, donations, and nonmonetary exchanges of capital assets, as well as depreciation expense, interest income or expense, and gains and losses derived from impairment or remeasurement of capital assets, inventory, or long-term debt.
  2. Financial Instruments Exclusion—this exclusion would remove from the scope of the project the following items: (a) investments, (b) financial guarantees, (c) derivative instruments, (d) financings such as leases, and (e) insurance.
  3. Postemployment Benefits Exclusion—this exclusion would remove from the scope of the project all guidance and projects related to pensions, OPEB, compensated absences, and termination benefits.
Current pronouncements, such as Statement No. 81, Irrevocable Split-Interest Agreements, and any guidance that may result from current projects, would be excluded from the scope of the project, unless the Board subsequently decides to include them in the scope of this project.

The following pronouncements should be considered in the scope of the project:
  1. NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, as follows:
    1. Revenue recognition: paragraphs 62–79
    2. Expenditure recognition: paragraphs 70–73
  2. Statement No. 6, Accounting and Financial Reporting for Special Assessments, revenue and expense recognition provisions only  
  3. Statement No. 21, Accounting for Escheat Property, paragraph 5—recognition guidance for escheat revenue  
  4. Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance 
  5. Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions 
  6. Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, paragraph 16  
  7. Statement No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues 
  8. Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements—the list of topics proposed for inclusion in the scope of the project are shown below. Those topics would be included to the extent that revenue or expense recognition is involved; other accounting and financial reporting issues related to those topics would not be considered included in the project. 
    1. Revenue Recognition for Exchange Transactions, paragraph 23 
    2. Revenue Recognition When Right of Return Exists, paragraphs 24–28     
    3. Broadcasters, paragraphs 385–388
    4. Cable Television Systems, paragraphs 389–399
Additionally, topics related to measurement such as collectibility, right of return, and warranties should be included in the scope of the project, as well as topics for which limited guidance exists, such as expense recognition, and other complex transactions that include revenue and expense recognition. Certain topics may be removed from the scope of the project if the Board is currently developing guidance for them.
  1. Transactions for which low collectibility thresholds exist are in the scope of the model.
  2. The two alternative models identified in footnote 8 of Statement 62, the installment method and the cost recovery method, to address revenue recognition when collectibility is not assured should be removed from the literature.
Furthermore, the following pronouncements would be considered outside the scope of the project:
  1. Statement 62: Accounting for regulated operations, paragraphs 476-500
  2. Statement 34: Topics related to interfund activity, including transactions between the primary government and its blended component unit, paragraph 112, as amended
  3. Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues: Topics related to intra-entity transactions
  4. Statement No. 84, Fiduciary Activities: Topics related to agency relations.
Finally, topics related to in-kind contributions, contributed services, and nonmonetary interlocal agreements (or services for services) are outside the scope of the project. Topics related to display (such as operating or nonoperating classifications), distinguishing between contract assets and receivables or identifying contract liabilities, or disclosure for revenues or expenses also are outside the scope of the project.

Guidance for intangibles outside the scope of the following pronouncements or projects will be assessed after the upcoming due process document (a Preliminary Views) to determine whether the transactions should be included in the scope of this project:
  1. Statement No. 51, Accounting and Financial Reporting for Intangible Assets
  2. Statement No. 87, Leases
  3. Subscription-Based Information Technology Arrangements
  4. Public-Private Partnerships.
Expense Model Conclusions

The Board tentatively agreed to the following expense model proposals:
  1. To develop a single revenue and expense recognition model based on the conceptual framework that does not distinguish between general purpose governments and BTA governments.
  2. To have a government centric expense model as follows:
    1. Costs incurred by governments by procuring goods and services should first be classified into categories, for example, exchange/nonexchange or performance obligation/non-performance obligation, to facilitate recognition; classification definitions have not been proposed at this time. Once a transaction is properly classified, expense recognition would be proposed if the flow of resources fails the definition of an asset, and a deferred outflow of resources. Recognition consideration is based on the flow’s applicability to a reporting period.
    2. The procurement of goods and services by governments may generate rights, resources, or assets, for which the government directs the use in the provision of services. Consequently, the benefit generated by a government’s procurement of goods and services should always be construed to accrue to the government’s constituency, in the fulfillment of its public purpose mission.