Private Company Advocacy Group Seeks Additional Revenue Standard Guidance
As private companies prepare to comply next year with the Financial Accounting Standards Board’s (“FASB”) revenue recognition standard, the American Institute of Certified Public Accountants’ Private Companies Practice Section (“PCPS”) seeks relief from the accounting changes. In its January 17 letter to the FASB, the PCPS requested permission for private companies to use less constricting interpretations for certain aspects of FASB Accounting Standards Codification 606, Revenue From Contracts With Customers.
The PCPS believes the FASB’s landmark standard impacts private companies by requiring strong consideration of recognition and measurement disparities and disclosure differences for specific conduit debt obligors. Accordingly, the PCPS requests that the FASB provide practical expedients for estimating performance responsibilities in a customer contract. The PCPS also wants the FASB to reconsider the definition of a contract.
Another request involves clarifying part of the new revenue recognition model requiring customer options for other goods and services that are a material right to be identified as distinct performance obligations. This provision requires internal controls that many private companies lack. As a result, the PCPS wants private companies to continue to use the incremental cost method for such matters.
Other requests include allowing private, short-cycle manufacturing businesses to recognize revenue when their products are distributed, as opposed to assessing contracts to decide whether the revenue must be recognized over time. Additionally, the PCPS wants a practical expedient to allow private companies to recognize revenue for out-of-pocket expenses the customer pays back, based on the reimbursed amount when costs are incurred. The PCPS also requested permission for nonprofit groups that are conduit debt obligors to follow the revenue standard when it becomes effective for private companies.
The FASB is reviewing the PCPS’ request but, per its practice, will not offer public responses to specific comment letters.