CPAs and Advisors with Your Growth in Mind


FASB Working to Update Definitions for Revenues and Expenses

Efforts have begun to update several financial statement definitions in the Financial Accounting Standards Board’s (“FASB”) Conceptual Framework, a guide used to help the board establish consistent accounting standards. In particular, the FASB is working to revise the definitions for revenues and expenses, as both terms use similar language in their descriptions under Statements of Financial Accounting Concepts No. 6, Elements of Financial Statements: a Replacement of FASB Concepts Statement No. 3 — Incorporating an Amendment of FASB Concepts Statement No. 2.

The FASB will look into defining revenues as either inflows or other improvements to assets of a company, or as settlements of the liabilities. It is likely that the updated definition could be a combination of both descriptions. Separately, the FASB could define expenses as outflows or “other using up of assets,” an incurrence of liabilities, or a combination of both descriptions.

During an October 11 discussion on the definitions, the FASB decided to keep the phrase “ongoing, major, or central” in the meanings for revenues and expenses. Board staff members consider the phrase, which refers to a company’s ongoing operations, as sometimes restrictive and preventive in labeling items as revenue or an expense. Further, FASB senior advisor James Leisenring said the board wants to expand what is considered revenue, as well as state that sales of products, goods, and services are no longer revenues or expenses unless they are considered major or central. Most FASB members, however, would rather keep the phrase as is.

Some FASB members support reviewing additional revisions to the Conceptual Framework before moving forward with updated definitions. For instance, Harold Monk noted that the updated definitions might not prove beneficial to companies when distinguishing between transactions in all situations.

Topics: , , , ,