Differences Between The FASB And The IASB
Both sets of standards have a five step guide that is used to achieve their sole purpose. They are to identify the contract with the customer, identify performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when, or as, the entity satisfies a performance obligation . In identifying a contract with a customer, both the FASB and the IASB require approval and commitment of the parties, as well as the identification of rights and payment terms. Also required is that the contract has commercial substance. It must be probable that consideration will be received in exchange for the goods or services being given to the customer.
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Other requirements are listed regarding contract combining, as the boards both believe that multiple contracts should be combined into one, if circumstances allow for it.
The second step is to identify the performance obligations in the contract. A performance obligation is simply the promise in a contract to transfer specified goods or services to the customer. In doing this, if there is more than one good or service that is promised to the customer in a contract, the entity must account for each as a separate obligation. This is so when the good or service is either distinct or is a series of distinct goods or services that are for the most part the
same. It should be noted that there are two requirements for a good or service to be "distinct". First, it must be capable of being distinct. In other words, it would be beneficial for the customer either on its own or together with other resources that are readily available to the customer. The other requirement that must be fulfilled as well is that the good or service must be distinct within the context of the contract, meaning that the promise to transfer the goods or services is separate from other promises in the contract. The next step is to determine the transaction price. In determining the transaction price, an entity should consider such thing as variable consideration, the existence of a significant financing component, noncash consideration, and consideration payable to the customer. Such considerations involve much estimation of values but non the less are important in determining a price. Step four is to allocate the transaction price to the performance obligations in the contract. This of course relates to contracts with multiple performance obligations. Where it is necessary for the entity to show separate consideration values for each obligation. In this process, the entity must determine something called the standalone selling price, which is simply the price that one specific good or service would sell for. If for any reason, this cannot be determined, an estimation is sufficient. Amounts allocated to a satisfied performance obligation should be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes. The final step I to recognize revenue when, or as, the entity satisfies a performance obligation. This is satisfied when the entity transferred a promised good or service to the customer. More specifically, it is satisfied when, or as, the customer gains control of the good or service. For each performance obligation, an entity satisfies the performance obligation over time by transferring control of goods or services over time. This is done when the customer simultaneously received and consumes benefits as the entity performs, or when the entity creates or enhances an asset that the customer controls. This is also done when the entity does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. For each performance obligation satisfied, the entity shall recognize revenue over time by consistently applying a method of measuring(input/output methods) the progress toward completion of that performance obligation. If not over time, a performance obligation is satisfied at a point in time. This happens when the entity has the right to payment for an asset, or when it has transferred physical possession of that asset. It also occurs when the customer has legal title, has significant risks and rewards of ownership, or has accepted the asset.
Other requirements are listed regarding contract combining, as the boards both believe that multiple contracts should be combined into one, if circumstances allow for it.
The second step is to identify the performance obligations in the contract. A performance obligation is simply the promise in a contract to transfer specified goods or services to the customer. In doing this, if there is more than one good or service that is promised to the customer in a contract, the entity must account for each as a separate obligation. This is so when the good or service is either distinct or is a series of distinct goods or services that are for the most part the
same. It should be noted that there are two requirements for a good or service to be "distinct". First, it must be capable of being distinct. In other words, it would be beneficial for the customer either on its own or together with other resources that are readily available to the customer. The other requirement that must be fulfilled as well is that the good or service must be distinct within the context of the contract, meaning that the promise to transfer the goods or services is separate from other promises in the contract. The next step is to determine the transaction price. In determining the transaction price, an entity should consider such thing as variable consideration, the existence of a significant financing component, noncash consideration, and consideration payable to the customer. Such considerations involve much estimation of values but non the less are important in determining a price. Step four is to allocate the transaction price to the performance obligations in the contract. This of course relates to contracts with multiple performance obligations. Where it is necessary for the entity to show separate consideration values for each obligation. In this process, the entity must determine something called the standalone selling price, which is simply the price that one specific good or service would sell for. If for any reason, this cannot be determined, an estimation is sufficient. Amounts allocated to a satisfied performance obligation should be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes. The final step I to recognize revenue when, or as, the entity satisfies a performance obligation. This is satisfied when the entity transferred a promised good or service to the customer. More specifically, it is satisfied when, or as, the customer gains control of the good or service. For each performance obligation, an entity satisfies the performance obligation over time by transferring control of goods or services over time. This is done when the customer simultaneously received and consumes benefits as the entity performs, or when the entity creates or enhances an asset that the customer controls. This is also done when the entity does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. For each performance obligation satisfied, the entity shall recognize revenue over time by consistently applying a method of measuring(input/output methods) the progress toward completion of that performance obligation. If not over time, a performance obligation is satisfied at a point in time. This happens when the entity has the right to payment for an asset, or when it has transferred physical possession of that asset. It also occurs when the customer has legal title, has significant risks and rewards of ownership, or has accepted the asset.