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IASB meeting summaries and observer notes

 IASB May 2009



The Board discussed how an entity should account for:

  • an option to renew goods and services promised in a contract
  • the effects of the customer�s credit risk
  • uncertain consideration.

Renewal options

The Board decided tentatively that a renewal option should be accounted for as a performance obligation if the stand-alone selling price of that option can be determined without undue cost. Some of the consideration would be allocated to the option and recognised as revenue when the obligation is satisfied.

The staff will consider further how an entity should account for a renewal option if the stand-alone selling price of an option cannot be determined without undue cost. In particular, the staff will explore how an approach of �looking through� the option (by including within the recognised contract amount the optional goods and services the customer is expected to obtain) would differ from an approach that directly estimates the stand-alone selling price of the renewal option or the intrinsic value of the option.

The Board did not discuss how to account for other options, eg options for additional goods and services as in a customer loyalty programme. However, it decided tentatively that the accounting for such options should be the same as for renewal options.

Customer�s credit risk

The Board decided tentatively:

  • that the measurement of an entity�s net contract position should reflect the customer�s credit risk. Hence, uncertainty of collectibility because of the customer�s credit risk would affect the amount of profit or loss recognised when a performance obligation is satisfied, rather than whether profit or loss is recognised.
  • an entity should report in the financial statements the invoiced amount of the consideration (ie excluding adjustments for the effects of credit risk) allocated to satisfied performance obligations. The staff will consider further how the effects of the customer�s credit risk should be presented in the statement of comprehensive income and disclosed.

Uncertain consideration

At a joint session with the FASB, the Board discussed how an entity would measure its net contract position and revenue when the customer promises an uncertain (variable) amount of consideration.

The IASB and FASB previously decided tentatively that when the amount of consideration is uncertain (variable), the amount allocated to performance obligations would be the entity�s probability-weighted estimate of total consideration. However, the boards did not agree on whether, and if so when, the amount recognised as revenue should be constrained.

At this meeting, the boards tentatively decided that revenue recognition should be constrained only if the consideration amount cannot be reliably estimated. The staff will develop proposed application guidance on this point. The staff will also develop potential disclosures that an entity might provide about contracts with uncertain consideration and the estimates used in the financial statements.

Next steps

In June, the Board will continue its discussion of contract-related issues and discuss what amounts an entity should recognise as revenue when other parties are involved in providing goods and services to the entity�s customer.


Date: 5/19/2009