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FASB Amends Disclosure Rule for Revenue Standard

Recently approved technical corrections to the Financial Accounting Standards Board’s (“FASB”) upcoming revenue recognition standard include a disclosure break for companies in the technology, entertainment, and payment card processing industries. The exemption will give some companies a pass in reporting the remaining contractual obligations to a customer before they receive payments. Sales-based or usage-based royalties for intellectual property licenses and variable consideration distributed to distinct goods or services would qualify for the break.

Termed a “practical expedient” in the Proposed Accounting Standards Update No. 2016-240, Technical Corrections and Improvements to Update 2014-09, Revenue From Contracts With Customers (Topic 606), the disclosure break was approved because FASB staff Kramer Holle believed it would match the standard’s disclosure requirements with its recognition requirements. Most FASB members agreed, noting it was essential for the disclosure and recognition requirements to be aligned.

The disclosure break was approved despite several objections. Investors wanted the revenue standard to remain as is, arguing that the information provides better understanding of a company’s financial performance. FASB member Harold Schroeder agreed with this sentiment, saying the disclosure exemption would deny investors and analysts of pertinent information.

The FASB’s long-awaited revenue recognition standard goes into effect for public companies in 2018.

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