FASB Says One for All; CFOs Say All for None

The Financial Accounting Standards Board (FASB) is proposing a new “one size fits all” approach to revenue-recognition rules for companies, regardless of industry.

This means that companies like Ford Motor Company, Apple and Caterpillar, which at the moment have nothing in common, could face challenging accounting hurdles trying to meet all-encompassing reporting rules, in the near future.

Getting rid of industry-specific applications and exceptions, the FASB sees this approach as part of a larger plan to find a compromise between the excess of U.S. revenue-recognition rules and lack of rules for international standards.

The FASB argues that the more than 100 contentions regarding when and how companies book revenue, including 25 industry-specific standards, creates comparability problems for investors and other financial-statement users. Seemingly similar companies may have similar transactions but are treated differently and therefore produce different results, confusing investors about which principles are applied to which company and why.

But for CFO’s, a uniformed system is not the best choice, based on practicality. For them, the proposed changes offer too much subjectivity and impose on the ultimate goal of providing investors with the most relevant information.

In an exposure draft issued in January, the FASB and International Accounting Standards Board (IASB) acknowledged that the proposal might cause temporary disruption with respect to the required retrospective application of the rules and be especially hard for companies already involved in long-term contracts as well as those just entering contracts.

CFOs also worry about running into technical complications when introducing their accounting systems to handle the new allocation models.

Most enterprise-resource-planning (ERP) systems are programmed to handle financial distributions that assign dollar amounts of revenue to each element of a bundled project. Instead, the new rules allocate revenue for projects based on percentage. If adopted, many companies will then need to tweak their current ERP system or find a work-around solution.

For now, drafted rules are open for public opinion until October 22 and can be found here under “Proposed Accounting Standards Update – Revenue Recognition: Revenue from Contracts with Customers.” But the goal is to find a middle ground by second quarter of next year using a converged standard.