FASBs Current Exposure on Revenue Recognition Essay

FASBs Current Exposure on Revenue Recognition - Essay Example The entities will change their revenue recognition policy since the proposed amendment will actually supersede the current revenue recognition of GAAP and also the IFRSs guides in IASs 11 and 18. It is true with the new proposed guidelines that some entities will be more affected than others and the main areas which the board have identified so far include; whether the recognition of that revenue is fully based on the transfer of goods in question or the service like construction services, customized software’s or in the manufacturing areas. The companies will also be required to identify the performance separate duty either by dividing the given contract into parts which are actually distinct and can be delivered at different times, this can make an entity to separate the contract and account for it in a different way as the current accounting practices. The companies will also be required to analyze the intellectual property whether it is less than the actual economic value of the property that is the license is being granted in a non-exclusive or exclusive basis in this case the company will be required to recognize the revenue in terms of the license term, and this will actually be different with the current practices of revenue recognition. The issue on how the credit risk is evaluated is actually contradicting with the current rules and practices and this will have the effect on the credit risk of the customers and the collectability period this will, in turn, affect the number of revenues recognized by an entity rather than when to recognize such revenue. The companies will also be required to use estimates in calculating the transaction price of a commodity unlike the current rigid rules in following of the rules and standards in coming up with the commodity price. The new guidelines also give details on how to account for the cost of contract services, the new proposal, unlike the current guidelines, gives or specify the contract parts to be classified as expenses and the cost to be capitalized.