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


Effective Date as


01 Presentation of Financial




01 January 2005
02 Inventories December


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




01 January 2005
10 Events after the Balance Sheet


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


01 January 2005
17 Leases December


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



01 January 2005
23 Borrowing Costs December


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


April 1989


01 January 2005
28 Accounting for Investments in Associates April 1989


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:


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
38 Intangible Assets September 1998

limited amendments

were made 31 March


Adopted on 18 April


39 Financial Instruments:

Recognition and Measurement

March 1999 01 January 2001
40 Investment Property April 2000 01 January 2005
41 Agriculture February 2001


01 January 2003


IFRS Title Date of


Effective Date as


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


June 1998 01 January 2005
IFRS 6 Exploration for Evaluation of

Mineral Resources

December 2004 01 January 2006
IFRS 7 Financial Instruments:


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 being 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
7 Cash Flow Statement Adopted, on or after
I” January 1999
8 Accounting Policies,

Changes in Accounting

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 &


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


Compensation for the

Impairment or loss of

items; and SIC-23

Property, Plant and

Equipment- Major

Inspection or Overhaul


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


Adopted, on or after

I” January 1999



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


Capitalization of Loss

Resulting form Severe

Currency Devaluations-,

SIC-19 Reporting


and Presentation of

Financial Statements

under IAS 21 and IAS

29; and SIC-30

Reporting Currency?

Translation from

Measurement Currency

to Presentation


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


26 Accounting and Reporting

by Retirement Benefit


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


of Losses; and SIC-33

Consolidation and

Equity Method?

Potential Voting Rites

and Allocation of

Ownership Interests.

29 Financial Reporting in



Under process of


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


32 Financial Instruments:


Under process of


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


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


34 Interim Financial


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


Adopted, on or after

I” January 2007

38 Intangible Assets Adopted, on or after

Is‘ January 2005

39 Financial Instruments:

Recognition and

Under process


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
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

IFRS 6 Exploration for and Adopted as BFRS on
Evaluation of Mineral 05 July 2006
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


1 Presentation of Financial


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


10 Events after the Reporting


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


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:


32 Financial Instr LIMCtItS:


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


37 Provisions, Contingent

Liabilities and Contingent


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


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.

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.


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


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