International Accounting Standard (IAS): Application of IAS-18 Revenue

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International Accounting Standard (IAS): Application of IAS-18 Revenue

History of IAS

1.1 History of IAS:

Historically, there have been four accounting standards models in the industrialized countries: The United Kingdom, Continental Europe, and the United States and Latin American models. The International Accounting Standards Committee (IASC) has taken the lead in the standardization of these models. The IASC is the result of efforts begun in 1973 by the United States, Canada and the United Kingdom toward internationalism in accounting standards. Currently there are representatives from accounting bodies in 106 countries and there have been 31 standards issued to date.

Most of these opinions correlate with American Institute of Certified Public Accountants’ (AICPA’s) Accounting Principles Board and Financial Accounting Standards Boards (FASB) statements.

Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC).

In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS. Up to year 2008, IASB adopted 8 IFRS.

International Accounting Standards (IAS) is a set of standards stating how particular types of transactions and other events should be reflected in financial statements. The IAS are issued by the IASB, the Board of the International Accounting Standards Committee (IASC).

Many countries already endorse International Accounting Standards (IAS) as their own either without amendment or else with minor additions or deletions. Furthermore, important developments are taking place in the European Union, where the European Commission is progressing proposals that will require all listed companies in the European Union to prepare their consolidated financial statements using International

Accounting Standards. Already, both inside and outside the EU, many leading companies have stated that they prepare their financial reports in accordance with International Accounting Standards.

Other countries do not permit companies _to use International Accounting Standards (IAS) %ritlIOL]t reconciliation to domestic generally accepted accounting principles. Most notable among these countries are Canada, I long Kong, Japan. and the United States.

2.2 Total Number of IAS:

	IAS No	IAS Title	Date of Pronouncement	Effective Date as IAS
	01	Presentation of Financial Statements	September 1991(Amended)	01 January 2005
	02	Inventories	December 1993(Amended)	01 January 2005
	07	Cash Flow Statements	December 1992	01 January 2004
	08	Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies	December 1993(Amended)	01 January 2005
	10	Events after the Balance Sheet Date	May 1999(Amended)	01 January 2005
	11	Construction Contracts	December 1993	01 January 1995
	12	Income Taxes	October 1996	01 January 1998
	14	Segment Reporting	August 1997	01 July 1998
	16	Property, Plant and Equipment	December 1993(Amended)	01 January 2005
	17	Leases	December 1997(Amended)	01 January 2005
	18	Revenue	December 1993	01 January 2005

19	Employee Benefits	February 1998	01 January 1999
20	Accounting for Government Grants and Disclosure of Government Assistance	April 1983 Reformatted in 1994	01 January 1984
21	The Effects of Changes in Foreign Exchange Rates	December 1993(Amended)	01 January 2005
23	Borrowing Costs	December 1993(Amended) Reformatted in 1994	01 January 1995
24	Related Party Disclosures	July 1984(Amended)	01 January 2005
26	Accounting and Reporting by Retirement Benefits Plans	January 1987 Reformatted in 1994	01 January 1988
27	Consolidated Financial Statements and Accounting for Investments in Subsidiaries	April 1989 (Amended)	01 January 2005
28	Accounting for Investments in Associates	April 1989 (Amended)	01 January 2005
29	Financial Reporting in Hyperinflationary Economies	July 1989	01 January 1990
31	Financial Reporting in Interest in Joint ventures	December 1990 Reformatted in 1994	01 January 2005
32	Financial Instruments: Presentation	June 1995	01 January 1996
33	Earnings per Shares	February 1997	01 January 2005
34	Interim Financial Reporting	February 1998	01 January 1999
36	Impairment of Assets	31 March 2004	Adopted on 27 December 2003
37 Provisions, Contingent Liabilities and Contingent		September 1998 Reformatted in 1994	01 July 1999

	Assets
38	Intangible Assets	September 1998 limited amendments were made 31 March 2004	Adopted on 18 April 2004
39	Financial Instruments: Recognition and Measurement	March 1999	01 January 2001
40	Investment Property	April 2000	01 January 2005
41	Agriculture	February 2001 (Amended)	01 January 2003
IFRS no.	IFRS Title	Date of Pronouncement	Effective Date as IAS
IFRS I	First time Adoption of International financial reporting standards	June 2003	01 January 2004
]FRS 2	Share Based Payments	February 2004	01 January 2005
IFRS 3	Business Combinations	October 1998	3 31 March 2004
IFRS 4	Insurance Contracts	March 2004	01 January 2005
IFRS 5	Non-current Assets held for sale and Discontinued Operations	June 1998	01 January 2005
IFRS 6	Exploration for Evaluation of Mineral Resources	December 2004	01 January 2006
IFRS 7	Financial Instruments: Disclosures	August 1990	01 January 2006
IFRS 8	Operating Segments	November 2006	01 January 2009

2.1 Bangladesh Accounting Standards (BAS):

BAS are developed by the ICAB and are based oil older IASs-generally those developed by the IASC rather _than the improved IASs and the IFRSs developed by the IASB. The Technical and Research Committee of the ICAB develops the standards. Adoption requires approval of the ICAB Council.

Adopted BASS are legally enforceable for listed companies under the SEC Rules. They are not mandatory or enforceable through the ICAB by-laws.

The auditor’s report and basis of presentation note refer to conformity with international accounting applicable inBangladesh.

Accounting standards are authoritative statements of how particular types of transactions and other events should be reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for the fair presentation of financial statements.

The application of BAS in the preparation, presentation, analysis, monitoring and evaluation of the financial statements and governance of corporate bodies is mandatory. This is in order to reflect the true and fair financial position of the entities with a view to safeguarding the interest of the stakeholders of all categories. We are aware that in the face of colossal corporate collapses caused by Enron, Parmalat and others, the credibility and transparency of the accounting profession was called into question around the globe in recent years and there was a loss of public confidence in the profession. In order to regain the lost public confidence ⁱⁿ the accounting profession in Bangladesh, ICAB has taken a very laudable step by adopting the IAS as BAS. Up _to July 2006, the ICAB has adopted 29 IASs, IASB Framework and four Bangladesh Financial Reporting Standards (BFRS), (See Appendix) As the official standards setting body of this country and also as a regulatory body of the accounting profession, ICAB was one of the first Institutes ⁱⁿ this region to start adoption IAS as a process of stringent technical review and considering their applicability to our country. With the passage of’ time, some of the [AS adopted by ICAB have been superseded, withdrawn or revised.

The present mechanism of setting accounting standards _in Bangladesh is briefly discussed here. At present, the Technical and Research Committee (TRC) of the ICAB screens and evaluates IASs or IFRSs and recommends particular IAS or IFRS to the council of the ICAB for adoption. There is some legal backing to Bangladesh Accounting Standards (BASs) and Bangladesh Financial Reporting Standards (BFRSs) in that the Securities and Exchanges Rules, 1987 requires listed companies to prepare their financial statements in accordance with BASs and BFRSs.

There are two schools of thought on the adoption of IAS or IFRS by developing Countries. The one school argues that IASs are generally as applicable in developing Countries as they are in developed countries. The other school opposes the wholesale adoption of IASs for developing countries. The second school of thought, those who oppose the wholesale adoption of IAS for developing countries, they have argued that we need to consider the accounting needs of each developing country before prescribing any set of standards (Wallace, 1993, Chaderton & Taylor, 1993). In this regard, Kabir wrote “It is to be noted that IFRSs are heavily influenced by the Anglo-American traditions. These are the result of evolution over a long period of time. It may be rightly asked whether the I FRSs that the applied by companies in developed countries are suitable for companies in developing countries whose socio-economic conditions are different from those in developed countries” (Kabir, 2005, P-6). Kabir also criticized the present wholesale adoption procedure of IASs as BASs by ICAB. He wrote “The present approach to adoption is one of lagged adoption. This means that an IFRS is adopted at a time without modification and without any provision of subsequent changed in it. As IFRSs are bein^g changed continuously, BASs may get out of line ⁱⁿ some instances. For example, BAS 2 permits LIFO, which is now prohibited by IAS 2. This should not be taken as an advocacy of the approach in which the body, for example the ‘CAB; would only specify the relevant IFRSs adopted in Bangladesh and say that these IFRSa would be applicable as they stand at the time of preparing financial statements.” But in July 2006 ICAB had withdrawn the permission of LIFO to follow blindly LAS 2.

Standard setting is a continuous process. As and when new standards are adopted by ICAB, these will be published for use by all concerned. Once adopted, the next biggest challene is to ensure application of these standards, where applicable. ICAB has challeng big role to play ⁱⁿ dissemination of these standards on a big scale and providing training, technical support and overall guidance not only to its members but also to non­members as well. ^In this respect, ICAB has to work in close cooperation with SEC, Stock Exchanges, Bangladesh Bank, Chambers of Commerce and Industries, NBR and other regulatory agencies.

2.2 Current status of Bangladesh Accounting Standards (BASS):

BAS No.	BAS Title	BAS Effective Date	Remarks
I	Presentation of Financial	Adopted on or after	Supersedes IAS 1:
	Statements	I” January 2007	Presentation of .
			Financial Statements revised in 2003, as Amended in 2005
1)	Inventories	Adopted, oil or after	Supersedes IAS 2:
		I” January 2007	Inventories revised in
			1993 and SIC-1
			Consistency- Different
			Cost Formulas for
			Inventories.
7	Cash Flow Statement	Adopted, on or after
		I” January 1999
8	Accounting Policies, Changes in Accounting	Adopted
	Estimates and Errors
10	Events after the Reporting	Adopted, oil or after	Supersedes IAS 10:
	Period	I” January 2007	Events after the

			Balance Sheet Date
	Construction Contracts	Adopted, on or after I” January 1999
12	Income Taxes	Adopted, on or after I” January 1999
16	Property, Plant & Equipment	Adopted, on or after I” January 2007	Supersedes 16: Property, Plant and Equipment(revised in 1998) & SIC-6 Cost of Modifying Existing Software, SIC-14 Property , Plant and Equipment? Compensation for the Impairment or loss of items; and SIC-23 Property, Plant and Equipment- Major Inspection or Overhaul Costs.
17	Leases	Adopted, on or after 1″ January 2007	Supersedes IAS 17: Lease (revised in 1997)
18	Revenue	Adopted, on or after I” January 2007
19	Employee Benefits	Adopted, on or after Is‘ January 2004	Supersedes IAS 19: Retirement Benefits Costs approved in 1993
20	Accounting of Government Grants and Disclosure of Government Assistance	Adopted, on or after I” January 1999

21	The Effects of Changes in Foreign Exchange Rate		Adopted, on or after I” January 2007		Supersedes IAS 21: The Effects of changes in Foreign Exchange Rate (revised in 1993): SIC-1I Foreign Exchange? Capitalization of Loss Resulting form Severe Currency Devaluations-, SIC-19 Reporting Currency-Measurement and Presentation of Financial Statements under IAS 21 and IAS 29; and SIC-30 Reporting Currency? Translation from Measurement Currency to Presentation Currency.
23	Borrowing Costs		Adopted, on or after 1″ January 2007		Supersedes IAS 23: Borrowing Costs revised in 1993
24	Related Party Disclosures		Adopted, on or after I” January 2007		Supersedes IAS 24: Related Party Disclosure (reformed in 1994)
26	Accounting and Reporting by Retirement Benefit Plans		Adopted, on or after I” January 2007
27	Consolidated and Separate		Adopted, on or after		Supersedes IAS 27:
	Financial Statements		I” January 2007		Consolidated and Separate Financial Statements (as revised in 2003)
28	Investments in Associates		Adopted, on or after 1 January 2007		Supersedes IAS 28: Accounting for Investments in Associates (revised in 2000). SIC-3 Elimination of Unrealized Profits and Losses on Transition with Associates, SIC? 20 Equity Accounting Method-Reconnection of Losses; and SIC-33 Consolidation and Equity Method? Potential Voting Rites and Allocation of Ownership Interests.
29	Financial Reporting in Hyperinflationary Economics		Under process of review
31	Interest in Joint Ventures		Adopted, on or after I` January 2007		Supersedes IAS –3 )1: Financial Reporting of Interest in Joint Ventures (revised in 2000)
32	Financial Instruments: Presentation		Under process of review		Supersedes IAS 32: Financial Instruments:
						Disclosure and Presentation revised in 2000. SIC-5 Classification of Financial Instruments? Contingent Settlement Provisions; SIC-16 Share Capital? Required Own Equity Instruments (Treasury Shares); and SIC-17 Equity- Costs of Equity Transition.
33		Earnings per Share		Adopted, on or after I” January 2007		Supersedes IAS 33: Earnings per Share (issued in 1997). SIC? 24 Earnings per Share – Financial Instruments and other Contracts that may be settled in Shares
34		Interim Financial Reporting		Adopted, on or after I’t January 1999
36		Impairment of Assets		Adopted, on or after I” January 2005
37		Provisions, Contingent Liabilities and Contingent Assets		Adopted, on or after I” January 2007
38		Intangible Assets		Adopted, on or after Is‘ January 2005
39		Financial Instruments: Recognition and		Under process review

	Measurement
40	Investment Property	Adopted, on or after	Supersedes IAS 40:
		1″ January 2007	Investment Property
			(issued in 2000)
41	Agriculture	Adopted, on or after
		I” January 2007
IFRS	Title	Adoption status of
		ICAB
IFRS 1	First-time adoption of	Adopted as BFRS on
	International Financial	21 April 2008
	Reporting Standards
IFRS 2	Share based Payment	Adopted as BFRS on
		05 July 2006
IFRS 3	Business Combinations	Adopted as BFRS on
		15 December 2005
IFRS 4	Insurance Contracts	Adopted as BFRS on
		23 October 2008
IFRS 5	Non current Assets held foi- Sale and Discontinued	Adopted as BFRS on 15 December 2005
	Operations
IFRS 6	Exploration for and	Adopted as BFRS on
	Evaluation of Mineral	05 July 2006
	Resources
ll:IZS 7	Financial Instruments:	Adopted as BFRS on
	Disclosures	27 July 2008
IFRS 8	Operating Segments	Adopted as BFRS on
		21 April 2008

2.3 IAS Vs BAS:

IAS No	IAS Title	BAS No.	BAS Title
01	Presentation of Financial Statements	1	Presentation of Financial Statements
02	Inventories	2	Inventories
07	Cash Flow Statements	7	Cash Flow Statement
08	Net Profit or Loss for the Period, Fundamental Errors and	8	Accounting Policies, Changes in Accounting, Estimates and

09	Changes inAccounting Policies	09	Errors
10	Events after the Balance Sheet Date	10	Events after the Reporting Period
11	Construction Contracts	11	Construction Contracts
12	Income Taxes	12	Income Taxes
14	Segment Reporting
16	Property, Plant and Equipment	16	Property, Plant & Equipment
17	Leases	17	Leases
18	Revenue	18	Revenue
19	Employee Benefits	19	Employee Benefits
20	Accounting for Government Grants and Disclosure of Government Assistance	20	Accounting of Government Grants and Disclosure of Government Assistance
21	The Effects of Changes in Foreign Exchange Rates	21	The Effects of CIvinges in Foreign Exchange Rate
23	Borrowing Costs	23	Borrowing Costs
24	Related Party Disclosures	24	Related Party Disclosures
26	Accounting and Reporting by Retirement Benefits Plans ,	26	Accounting and Reporting by Retirement Benefit Plans
27	Consolidated Financial Statements and Accounting for Investments in Subsidiaries	27	Consolidated and Separate Financial Statements
28	Accounting for Investments in Associates	28	Investments in Associates
29	Financial Reporting in Hyperinflationary Economics	29	Financial Reporting in Hyperinflationary Economics
30	Financial Reporting in Interest in Joint ventures	31	Interest in Joint Ventures
32	Financial Instruments: Presentation	32	Financial Instr LIMCtItS: Presentation

33	Earnings per Shares	33	Earnings per Share
34	Interim Financial Reporting	34	Interim Financial Reporting
36	Impairment of Assets	36	Impairment of Assets
37	Provisions, Contingent Contingen, Continent Liabilities and Contingent Assets	37	Provisions, Contingent Liabilities and Contingent Assets
38	Intangible Assets	38	Intangible Assets
39	Financial Instruments: Recognition and Measurement	39	Financial Instrument: Recognition and Measurement
40	Investment Property	40	Investment Property
41	Agriculture	41	Agriculture

3.1Definitions 

The following terms are used in this Standard with the meanings specified: Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an enterprise when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

3.2 Objective of IAS-18

Income is defined in the <href=”#1025085″>Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events. The primary issue in accounting for revenue is determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.

3.3 HISTORY OF IAS 18
April 1981	Exposure Draft E20 Revenue Recognition
December 1982	IAS 18 Revenue Recognition
1 January 1984	Effective date of IAS 18 (1982)
May 1992	E41 Revenue Recognition
December 1993	IAS 18 Revenue Recognition (revised as part of the ‘Comparability of Financial Statements’ project)
1 January 1995	Effective date of IAS 18 (1993) Revenue Recognition
December 1998	Amended by IAS 39 Financial Instruments: Recognition and Measurement, effective 1 January 2001
16 April 2009	Appendix to IAS 18 amended for <href=”#0904improvements”>Annual Improvements to IFRSs 2009. It now provides guidance for determining whether an entity is acting as a principal or as an agent.

3.4 Scope

1. This Standard should be applied in accounting for revenue arising from the following transactions and events :(a) the sale of goods ;(b) the rendering of services; and(c) the use by others of enterprise assets yielding interest, royalties and dividends. 2. This Standard supersedes IAS 18 Revenue Recognition approved in 1982. 3. Goods include goods produced by the enterprise for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale. 4. The rendering of services typically involves the performance by the enterprise of a contractually agreed task over an agreed period of time. The services may be rendered within a single period or over more than one period. Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in IAS 11 <href=”#1064680″>Construction Contracts. 5. The use by others of enterprise assets gives rise to revenue in the form of: (a) interest – charges for the use of cash or cash equivalents or amounts due to the enterprise; (b) royalties – charges for the use of long-term assets of the enterprise, for example, patents, trademarks, copyrights and computer software; and (c) dividends – distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital. 6. This Standard does not deal with revenue arising from: (a) lease agreements (see IAS 17 <href=”#1074857″>Leases); (b) dividends arising from investments which are accounted for under the equity method (see IAS 28 <href=”#1030986″>Accounting for Investments in Associates); (c) insurance contracts of insurance enterprises; (d) changes in the fair value of financial assets and financial liabilities or their disposal (see IAS 39 <href=”#1070704″>Financial Instruments: Recognition and Measurement); (e) changes in the value of other current assets; (f) initial recognition and from changes in the fair value of biological assets related to agricultural activity (see IAS 41 <href=”#1066177″>Agriculture); (g) initial recognition of agricultural produce (see IAS 41 <href=”#1066177″>Agriculture); and (h) the extraction of mineral ores.

3.5 CLASSIFICATION OF REVENUE

The classification of revenue set forth in Exhibit IV – A is

* Segregate the major types of revenue resulting from the primary purpose of the housing system; i.e., the day-to-day housing and feeding of full-time occupants,

* Segregate this revenue between regular session and summer session, and

* provide for the segregation of other significant revenue items not directly related to the primary purpose of the housing system. Additional accounts to meet the particular needs of a campus may be established at campus option. All revenue account numbers are to be assigned by the campus. Based on materiality, forfeits and other income items have not been segregated between regular and summer sessions and may be classified as regular session income on the Statement of Operations. However, if any of these income items are significant during the summer, the campus Accounting Officer may elect to establish separate accounts.

3.6 Measurement of Revenue

Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue. However, exchanges for dissimilar items are regarded as generating revenue. [IAS 18.12]

If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate. This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a below-market rate of interest. Interest must be imputed based on market rates.

3.7 Revenue Recognition

The staff noted that the Board had previously tentatively concluded that the fair value of an entity’s performance obligations should be measured at the ‘legal layoff amount’. In considering this the Board noted that different prices exist and requested the staff to consider why these prices arise.

The staff noted that the price differences arose from different bundles of goods and services. The staff recommended that the ‘legal layoff amount’ should be measured at the minimum amount the entity would incur to settle the specific bundle of goods and services including internal costs such as arranging delivery or insurance. Certain Board members continued to express concern as to this approach. It was noted that discussion on this topic would continue.

The Board agreed that estimates used in revenue recognition should be subject to the same reliability threshold as used for other estimates in financial reporting.

The Board discussed various examples with differing ways of determining the fair value of the performance obligation to determine what factors they would accept as evidence of fair value.

Discussion at the January 2010 Joint IASB-FASB Meeting

The Boards discussed what revenue disclosures should be proposed in the forthcoming exposure draft (ED).

Disclosure objective

The Boards discussed whether the ED should contain a disclosure objective similar to that in IFRS 7. While not agreeing explicitly to provide such an objective, the Boards did not support the approach suggested by the staff and requested that any disclosure objective should tie disclosure to the drivers of revenue-generation in the business: what affected the timing, nature, and amount of revenue; significant estimation uncertainty; etc.

Nature of and accounting policies applicable to contracts with customers The Boards discussed but did not approve a staff suggestion related to the disclosure of the nature of and accounting policies applicable to contracts with customers. Board members thought the staff suggestions were too vague to be operational. Linking performance with financial position balances of the net contract position. In doing so, Board members were extremely concerned that the Boards would be forcing on preparers meaningless disclosures that would not be useful to users and urged that greater clarity be provided. The staff should find a way to ensure that the disclosure was required only when the movement in the net contract position was a meaningful measure – such as in the aero plane manufacture or shipbuilding industries, in which the order book was as important as the annual performance.

Onerous contracts

The Board referred a proposal that an entity should disclose a roll-forward of the opening and closing balances of the additional liability for onerous contracts back to the staff. Board members noted that any such disclosure had to integrate a larger data set: what was included in onerous contracts; what was added to the category and what was removed; information about similar contracts in the same class as those classified as onerous; etc.

Level of desegregation

The Boards discussed but did not conclude on the level of desegregation of revenue recognized during a financial period and how it should be achieved. The staff proposed an approach that would require desegregation for each category of significant goods and services identified in its accounting policies. Board members thought that the economic characteristics of the goods and services should be a determining factor, not the accounting policies. Other Board members were concerned that the staff needed to be more rigorous in its analysis before adding more disclosures.

Extent of judgment exercised

The Boards discussed but did not conclude on a disclosure principle for significant judgments with the objective in ASC Topic 605-25-50 (Multiple Element Arrangements: Disclosures).

The Chairman asked the staff to work with a team of three IASB and two FASB advisors to develop revised proposals for revenue disclosures in general.

Discussion at the February 2010 Joint IASB-FASB Meeting

Scope

The Boards considered the scope of the proposed revenue recognition model. The staff presented a flow chart that provided the decision criteria to determine whether a contract is in scope of the proposed revenue recognition model.

The Board agreed that performance obligations for the transfer of goods and services that are within the scope of other standards should be accounted for in accordance with those standards rather than under the proposed model. Those performance obligations would include contractual obligations to provide the customer with financial instruments, insurance coverage, leased assets, or guarantees. Some Board members questioned the application of the proposed scope when the contract is partly outside of scope of the proposed revenue recognition model, in particular using the ‘residual method’ (that is, allocate transaction price to all performance obligations equaled to fair value if those performance obligations are initially measured at fair value by the other standards, with the remaining balance allocated to all other performance obligations based on relative selling price).

Some Board members expressed concerns about how this principle would be operationalised and which guidance on bundling and unbundling is to be applied first if potentially inconsistent criteria are to be applied across some of the projects (such as revenue recognition and insurance).

Other Board members were concerned that the notion of interdependence was not properly defined within the project. A Board member raised the question of application of other Standards to some of the longstanding issues (such as volumetric optionally contracts) and noted that simply referring to another Standard would not solve those issues. Therefore, he argued that the staff should perform additional analysis.

An FASB member asked the staff for additional analysis how the interdependencies would be captured in interaction with other contracts. Finally, the Boards asked the staff for additional analyses on the definition of interdependencies and allocation method. These will be discussed at a future joint meeting.

Transition requirements

The Boards discussed the possible transition requirements for the new guidance. From the start of the discussion it was clear that a clear majority of the Boards preferred full retrospective application, given the importance of the revenue figures in the financial statements. Although, some Board members raised concerns about the potential use of hindsight, the Boards decided to propose a full retrospective application and to require transition disclosures in accordance with general requirements of IAS 8 (IFRSs) and ASC 250 (US GAAP).

Effective date

The Boards continued their discussion by considering whether or not to permit early adoption of the proposed Standard.

REVENUE Contents and Abstract:

4.1 Revenue Definition

Revenue includes all amounts of money received by a government from external sources during its fiscal year (i.e., those originating “outside the government”), net of refunds and other correcting transactions, other than issuance of debt, sale of investments, and agency or private trust transactions. Under this definition, revenue excludes amounts transferred from other funds or agencies of the same government.

Revenue comprises amounts received by all agencies, boards, commissions, or other organizations categorized as dependent on the government concerned. Stated in terms of the accounting procedures from which these data originate, revenue covers receipts from all accounting funds of a government, other than intergovernmental service (revolving), agency, and private trust funds.

Revenue of business-type activities of governments (utilities and other commercial or auxiliary enterprises) is reported on a gross basis. That is, related expenditures are not deducted from their revenues to derive net revenue amounts.

The following types of receipts are excluded from revenue:

Taxes and other amounts paid under protest and held in suspense accounts subject to possible refund. Such amounts are not reported as revenue unless and until the protest is decided in the government’s favor.

Proceeds from borrowing, whether short- or long-term, accept contingent loans and advances which are reported as intergovernmental revenues. Recoveries or refunds of amounts spent in the same fiscal year, which are deducted from expenditures.

Proceeds from the sale of investments and the repayment of loans, except for contingent loans as mentioned above. Any recorded profit or loss from the sale of investments, however, is reported as revenue or expenditure, based on the situation.

Transfers from agencies or funds of the same government .Agency or private trust transactions, where the government is acting on behalf of others.

Noncash transactions, such as receipt of technical services, commodities, property, noncash gifts or bequests, and other “receipts-in-kind.”Government revenues are categorized according to the nature of their source.

4.2 Refunds and Correcting Transactions

Revenue data are adjusted for refunds and other correcting transactions. The rules for refunds of taxes are different than those for other revenues.

4.3 General Revenue

General revenue comprises all revenue except that classified as liquor store, utility, or insurance trust revenue. Generally, the basis for this distinction is not the fund or administrative unit established to account for and control a particular activity, but rather the nature of the revenue source involved.

Within general revenue are four main categories: taxes, intergovernmental revenue, current charges, and miscellaneous general revenue. Each is described in detail below.

4.4 Taxes (and the Visibility Test)

Taxes are compulsory contributions exacted by a government for public purposes, other than for employee and employer assessments and contributions to finance retirement and social insurance trust systems and for special assessments to pay capital improvements. Tax revenue comprises gross amounts collected (including interest and penalties) minus amounts paid under protest and amounts refunded during the same period. It consists of all taxes imposed by a government whether the government collects the taxes itself or relies on another government to act as its collection agent (see below).

The visibility test. One important feature of tax revenue is the need to pass a “visibility test.” That is, the tax levy must be visible to the taxpayer as being a tax and not buried under the guise of another revenue. Take, for instance, a tax on utility services provided by the government levying the tax. If the utility bill does not itemize the tax but incorporates it into its user charge rate (therefore being invisible to the customer as a tax), then that so-called “tax” is reported as a utility revenue for Census Bureau purposes. Assignment of tax revenue. The classification of tax revenue sometimes gives rise to the issue of which government should be credited with the tax. This situation occurs whenever one government collects taxes imposed by another.

In determining the assignment of taxes, the Bureau gives primary consideration to the government that actually imposes the tax and usually credits that government with the tax collection. The government imposing a tax is the jurisdiction whose governing body adopts the legislation or ordinance specifying the type of tax, scope, and rate and requiring its payment. Generally, if another government collects a tax for the levying unit, then that government is considered to be acting as a collecting agent and is credited only with any amount it retains as reimbursement for administration or other costs. These guidelines apply to all taxes, whether levied under general municipal powers, charter powers, or specific state legislative authority.

A locally-imposed tax whose ordinance or statutory authorization specifies a distribution of funds to other jurisdictions (either mandatory or optional) is credited to the imposing government; payments to the other units are treated as intergovernmental transfers. Taxes adopted by a government in response to requests from other jurisdictions who may then share in the proceeds also are credited to the imposing government, the distribution being treated as intergovernmental transfers.

State government provisions also affect the assignment and classification of local taxes. A state-mandated tax required to be levied by a local government is credited to the local government imposing the tax. Similarly, that portion of a state-enacted tax which is locally collected and retained is credited as a tax of the collecting agency; if there is a mandatory distribution to other local governments of the taxes collected, each of the participating governments is credited with the amounts received as tax revenue. On the other hand, if there is a voluntary sharing of funds, these transactions are classified as intergovernmental transfers. State or local government legislation which provides that the imposing government waive credit for part or all of the amounts transferred to other jurisdictions does not alter these guidelines.

The examples below illustrate the various types of arrangements and how they are handled in this classification scheme:

For a state government, local collection of state-imposed taxes is classified as state tax revenue*.

State government distribution of its tax proceeds to local governments (e.g., on a formula basis) is treated as intergovernmental expenditure of the state and as intergovernmental revenue of the local governments. This is true even for amounts designated as the “local share” of state-imposed taxes so long as the tax proceeds are collected by the state or transferred to the state by local government collection agents before their distribution.

On the other hand, if the state collects a tax imposed by local governments, the collection and distribution to the imposing local governments is treated as an agency transaction; that is, the receipts are reported entirely as tax revenue of the local governments and not as either a state tax or state intergovernmental expenditure*.

Proceeds from taxes imposed by one local government but collected for it by another are reported as tax revenue of the imposing government, not the collecting one*.

In some cases a state government mandates that a specific tax be imposed by local governments, sets a tax rate, and mandates how the proceeds from the tax are to be redistributed locally. Such tax revenue is classified as a state tax with subsequent intergovernmental payments to the local governments receiving the revenue. This type of situation occurs where a state mandates countywide levies for local schools, for example. The proceeds are redistributed to local schools in a manner designed to equalize educational spending, but without regard to the county wherein the tax is originally collected.

* Monies retained as a collection fee, however, are reported as tax revenue of the collecting government.

Refunds of taxes. Refunds for taxes originally paid in either the current or prior fiscal years are deducted from gross collections in the same year refunded. Discounts to taxpayers for prompt payment or for collecting consumer taxes also are deducted from gross tax revenue. The cost of collecting and administering taxes, however, is reported as an expenditure (for Financial Administration, code 23), not as an offset to taxes.

Taxes on government utilities. Taxes are often imposed on publicly-owned utilities as on private ones. These amounts are reported as tax revenue for Census Bureau purposes. Payments-in-lieu-of-taxes from a utility operated by another government, however, are treated as intergovernmental revenue. (Payments-in-lieu-of-taxes from a private utility are reported under Miscellaneous General Revenue, NEC, code U99.) Both taxes and payments-in-lieu-of-taxes received by a government from a utility which it operates are treated as an interfund transfer and are not reported as either revenue or utility expenditure.

Taxes are classified according to the type of tax imposed. Unlike most other finance statistics, they are not categorized along any functional lines.

4.5 Intergovernmental Revenue

Intergovernmental revenue comprises monies from other governments, including grants, shared taxes, and contingent loans and advances for support of particular functions or for general financial support; any significant and identifiable amounts received as reimbursement for performance of governmental services for other governments; and any other form of revenue representing the sharing by other governments in the financing of activities administered by the receiving government. All intergovernmental revenue is reported in the general government sector, even if it is used to support activities in other sectors (such as utilities).

Intergovernmental revenue excludes amounts received from the sale of property, commodities, and utility services to other governments (which are reported in different revenue categories). It also excludes amounts received from other governments as the employer share or for support of public employee retirement or other insurance trust funds of the recipient government, which are treated as insurance trust revenue.

Intergovernmental revenue is classified by function and by the level of government where it originated (i.e., Federal, state, or local). The transfer of Federal aid through the state government is reported as intergovernmental revenue from the state at the local level.

4.6 Current Charges

This category comprises charges imposed for providing current services or for the sale of products in connection with general government activities. Amounts designated as current charges are reported on a gross basis without offsetting the cost to produce or buy the commodities or services sold. Utility service charges are excluded here and reported under Utility Revenue.

For the Federal Government, this category included revenue from premiums related to non-social insurance programs such as crop and farm mortgage insurance, home mortgage insurance, and the like.

4.7 Miscellaneous General Revenue

This category comprises all other general revenue of governments from their own sources (i.e., other than liquor store, utility, and insurance trust revenue).

A classification change effective with 1987-88 data had a major effect on this category. Interest revenue necessary to pay the interest expenditure on all public debt for private purposes is now reported under Interest Earnings, code U20. Previously, this treatment was limited to mortgage revenue bonded debt and was classified under Rents, code U40.

4.8 Liquor Store Revenue

Liquor store revenue comprises only receipts from sales and associated services or products of liquor stores owned and operated by state and local governments. It excludes any application of general revenue for liquor store operations as well as receipts from licenses or other liquor taxes collected by liquor stores or systems (including general sales tax collections). All taxes collected through liquor store operations are classified as tax revenue.

4.9 Utility Revenue

Utility revenue comprises receipts from sales and directly related services and by-products of the four types of state and local government utilities recognized by the Census Bureau: water supply, electric power, gas supply, and public mass transit systems. Utility revenue is reported on a gross amount without deducting its related expenditures.

Utility revenue excludes any identifiable amounts received from sales to the parent government. Assessments or contributions of utility employees that are received by public employee retirement systems are classified as insurance trust revenue.

Utility revenue also does not reflect any application of general revenue to utility purposes nor does it include any of the following receipts even when received by utility agencies or funds: interest on investments; rents from leases and other earnings from nonoperating property; grants, shared taxes, or any other form of intergovernmental aid (not to be confused with sales to other governments as customers); taxes imposed by public utilities; and special assessments for utility