What is the GASB revenue and expense recognition model?
|
GASB issued an Invitation to Comment on Thursday to seek feedback to assist its efforts to develop a revenue and expense recognition model for state and local government accounting. Show The three objectives cited by GASB in the development of the model are:
Two potential models are discussed in the Invitation to Comment document. An exchange/nonexchange model would include a classification process based on the existing definition for exchange transactions. The recognition process in this model would be based on existing guidance for nonexchange transactions and a standardized recognition approach for exchange transactions. A performance obligation/no performance obligation model would include a classification process based on a tentative definition of a performance obligation. That recognition process would retain existing guidance for transactions without a performance obligation, but also would apply a structured recognition approach for transactions classified as containing a performance obligation. “This Invitation to Comment lays out potential paths forward for establishing comprehensive guidance for revenue and expense transactions,” GASB Chairman David Vaudt said in a news release. “The board needs stakeholder feedback on the potential benefits and challenges of the two models before it begins to develop potential changes to the standards for future input.” Comments can be emailed to [email protected]. Public hearings on the issue are scheduled on May 6 in St. Louis, May 18 in Burlingame, Calif., and May 30 in Norwalk, Conn. GASB on Wednesday issued a proposed concepts statement addressing recognition of financial statement elements as well as a call for feedback on preliminary views on revenue and expense recognition model proposals. The proposed concepts statement on recognition of financial statement elements proposes a framework of interrelated objectives and fundamental principles that can be used by GASB to establish consistent accounting and financial reporting principles for recognition of elements of financial statements. Recognition concepts encompass the measurement focus, which determines what items should be reported in a financial statement, and the related basis of accounting, which determines when those items should be reported in a financial statement. In the exposure draft, GASB proposes a recognition framework for both:
The proposed concepts statement also contains a recognition hierarchy that would be followed when evaluating an item for recognition in the financial statements. Although concepts statements are primarily designed to guide GASB in establishing standards, they also may be used by preparers and auditors for assessment when GASB does not provide authoritative guidance. Comments on the proposed concepts statement can be submitted by Feb. 26, 2021, by email to [email protected]. Revenue and expense recognitionGASB is seeking to address revenue and expense recognition by:
In its preliminary views document, GASB presents its current thinking about the development of a comprehensive, principles-based model for accounting for revenue and expense transactions. The objective is to enhance the usefulness of information that governments report on their revenue and expenses. In the preliminary views, the board suggests that the transaction category would be based on the assessment of specific characteristics that a binding arrangement may or may not contain. The categorization methodology is intended to identify transactions with performance obligations. If a transaction is determined to have a performance obligation, the associated revenue or expense would be recognized based on the satisfaction of the performance obligation. For transactions that do not have a performance obligation, GASB proposed specific recognition guidance based on the various subcategories of transactions (for example, derived taxes such as income and sales taxes; and imposed taxes, such as property taxes). What is revenue recognition model?Essentially, the revenue recognition principle means that companies' revenues are recognized when the service or product is considered delivered to the customer — not when the cash is received. Determining what constitutes a transaction can require more time and analysis than one might expect.
What are the 5 steps of revenue recognition?The FASB has provided a five step process for recognizing revenue from contracts with customers:. Step 1 – Identify the Contract. ... . Step 2 – Identify Performance Obligations. ... . Step 3 – Determine the Transaction Price. ... . Step 4 – Allocate the Transaction Price. ... . Step 5 – Recognize Revenue.. What are the 4 main requirements associated with revenue recognition?In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.
What does GAAP say about revenue recognition?Generally accepted accounting principles (GAAP) require that revenues are recognized according to the revenue recognition principle, a feature of accrual accounting. This means that revenue is recognized on the income statement in the period when realized and earned—not necessarily when cash is received.
|
