Revenue Recognition: Converge Between U.S. Gaap and Ifrs

Revenue Recognition: Converge between U.S. GAAP and IFRS

While the basic revenue recognition model under US GAAP and IFRS share some similarities, if we make a comparison under two systems, we may find quite a few differences. In general, IFRS has much less industry-specific guidance than does US GAAP. First, one of the main differences lies in timing of revenue recognition with respect to contracts criteria such as long-term construction or contingency. According to US GAAP, revenue must be realized or realizable with certainty. The revenue recognition criteria may lead to deferrals in recognition. On the contrary, IFRS just defines the revenue recognition as “when it is possible that future economic benefits will flow into the enterprise and can be measured reliably”. Second, as for the long-term contracts revenue recognition, if reliable estimate cannot be made, GAAP allows completed contract method. It differs from that of the IFRS, which allows the cost recovery method. Third, US GAAP provides a much more detailed guidance about separation and allocation of multiple-deliverable arrangements in comparison to the guidance of IFRS. The US GAAP does not allow revenue recognition if a company fails to deliver remaining elements. Under IFRS, an entity can recognize its revenue if delivery is probable.

The new ASU entitled “Revenue from Contracts with Customers” definitely leads to some important changes from current GAAP. There are core revenue recognition principle and five steps in applying the principle. Initially, in step two “Indentify the Performance Obligations”, ASU changed the way we treat customer options. The ASU identify multiple performance obligations in arrangements that current GAAP treats as a single product or service. What is more, in step three “Determining the Transaction Price” the treatment of variable consideration is a significant departure from current GAAP by which a company typically only recognizes revenue associated with variable...