When a revenue or an expense event is recognized after cash has been exchanged it is referred to as

Revenue and Expense Recognition

Project Description

: The overall objective of this project is to develop a comprehensive, principles-based model that would establish categorization, recognition, and measurement guidance applicable to a wide range of revenue and expense transactions. Achieving that objective will include: (1) development of guidance applicable to topics for which existing guidance is limited, (2) improvement of existing guidance that has been identified as challenging to apply, (3) consideration of a performance obligation approach to the GASB’s authoritative literature, and (4) assessment of existing and proposed guidance based on the conceptual framework. The expected outcome of the project is enhanced quality of information that users rely upon in making decisions and assessing accountability.

:
Preliminary Views Redeliberations

• Background
• Accounting and Financial Reporting Issues
• Project History
• Current Developments
• Work Plan
• Recent Minutes
• Minutes Archive
• Tentative Board Decisions
• Task Force
• Project staff:
  • Paulina Haro
  • Pam Dolan
  • Joseph Wicklund
  • Ashlyn Rock
  • Noah Wulforst
  • Elizabeth Green
  • Lauren Maier

Revenue and Expense Recognition—PROJECT PLAN

Background: This project was prompted by three factors: (1) common exchange transactions that are not specifically addressed in existing GASB literature; (2) the results of the Financial Accounting Foundation’s (FAF) Post-Implementation Review (PIR) of GASB Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions and No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues; and (3) the development of the GASBs conceptual framework.

Exchange Transactions That Are Not Specifically Addressed in Existing Literature

GASB standards provide guidance for revenue recognition for nonexchange transactions in Statements 33 and 36. However, GASB standards provide limited guidance for exchange and exchange-like transactions and that guidance is based on pre-November 30, 1989 Financial Accounting Standard Board (FASB) and the American Institute of Certified Public Accountants (AICPA) pronouncements incorporated through Statement 62. That guidance has not been reexamined and generally has been applied through custom and practice.

Additionally, the FASB recently issued FASB Accounting Standards Codification® (ASC) Topic 606, Revenue from Contracts with Customers. These major changes in the FASB standards offer an opportunity to consider a performance obligation approach to the GASB’s standards. Therefore, the project is considering developing guidance or improving existing guidance on revenue recognition related to:

• Exchange and exchange-like transactions having single elements
• Exchange and exchange-like transactions having multiple elements
• The differentiation between exchange-like and nonexchange transactions.

Post-Implementation Review of Statements 33 and 36

The FAF conducted a PIR of Statements 33 and 36 and published its findings in November 2015. Among those findings, the PIR report showed that Statements 33 and 36: (1) resolved the issues underlying their stated needs, (2) produced decision-useful information for users of financial statements, and (3) could be applied as intended. However, there were areas that could be considered in this project, including:

• Distinguishing between eligibility requirements and purpose restrictions
• Determining when a transaction is an exchange or nonexchange transaction
• Using the availability period concept consistently across governments
• Applying time and contingency requirements.

Conceptual Framework

Statements 33 and 36 were issued in the 1990s, prior to the completion of key parts of the conceptual framework through the issuance of Concepts Statement No. 4, Elements of Financial Statements, in 2007. Concepts Statement 4 includes the definition of two additional elements in financial statements, deferred inflows and deferred outflows of resources. Therefore, an evaluation of the recognition of nonexchange transactions against the conceptual framework would be necessary.

: The project is addressing the following issues:

1. Specific guidance for exchange transactions is limited and current guidance indicates revenue from exchange transactions should be recognized when the exchange takes place. Differences in practice have emerged as to whether the exchange takes place when the sale occurs or when the obligation is fulfilled. Should revenue be recognized at the time of sale or when (or as) the obligation is fulfilled?
2. FASB guidance introduced a performance obligation approach to recognition of revenue. Should the performance obligation approach be used for transactions of a government? Should the approach be used only for exchange transactions? Should the approach be used for both revenue and expenses?
3. Statements 33 and 36 were issued prior to additional development of the GASB Concepts Statements. Should the guidance be revised in light of the Concepts Statements?
4. GASB literature contains guidance for certain exchange expenses, such as compensated absences and postemployment benefits. Guidance does not exist for most other common exchange expenses, including salaries and circumstances in which the government is the customer. Should guidance be developed for these exchange expenses?

:

• Pre-agenda research approved: September 2015
• Added to current technical agenda: April 2016
• Task force established? Yes
• Deliberations began: May 2016
• Task force meeting held: August 2017
• Invitation to Comment issued: January 2018
• Comment period: January–April 2018
• Public hearings held: May 2018
• Redeliberations began: June 2018
• Task force meeting held: May 2019
• Preliminary Views approved: June 2020
• Comment period: July 2020–February 2021
• Public hearings and user forums held: March and April 2021
• Redeliberations began: May 2021

: In June 2022, the Board redeliberated issues related to economic substance, rebuttable presumption of enforceability and broadly the role and function of binding arrangements and its relationship to transactions.

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Revenue and Expense Recognition—RECENT MINUTES

Minutes of Meetings, October 11–12, 2022

The Board continued redeliberations on the recognition methodology proposed in the Preliminary Views, Revenue and Expense Recognition, by considering Step 2 of the revenue recognition methodology. The Board tentatively decided that a government should recognize a liability for consideration received in advance of an enforceable claim in both Category A and Category B revenue transactions. The Board considered refundability as a pervasive issue in this assessment and tentatively decided that refundability should not be considered a relevant recognition attribute for Category A revenue transactions.

Next, the Board discussed Step 2 of the anchored expense recognition methodology and tentatively decided that a government should recognize a prepaid asset when providing resources to a counterparty prior to incurring a liability that is a payable in Category A and Category B expense transactions. Again, the Board considered refundability and tentatively decided that refundability should not be a relevant recognition attribute for Category A expense transactions.

Finally, the Board discussed Step 3 of the revenue and expense recognition methodologies, which considers deferred inflows of resources and deferred outflows of resources. The Board tentatively decided to rely on the identification of recognition attributes to determine the applicability of an inflow or an outflow to a reporting period. For Category A revenue and expense transactions, the Board tentatively decided that the recognition attribute that should be relied upon to determine the applicability to a reporting period is the satisfaction of a performance obligation. For Category B revenue and expense transactions, the Board tentatively decided that the recognition attribute that should be relied upon to determine the applicability to a reporting period is the compliance with time requirements. The Board also tentatively decided that the recognition attributes tentatively agreed to be used in this project to determine applicability to a reporting period should be limited to transactions in the scope of this project, with a prohibition for analogy.

Minutes of Meetings, August 24–26, 2022

The Board continued redeliberations on the recognition methodology and tentatively decided that an anchored recognition methodology, as proposed in the Preliminary Views, Revenue and Expense Recognition, should be retained as the basis for analysis of transactions in the scope of this project.

In addition, the Board discussed stakeholder feedback regarding the understandability and application of the acquisition of net assets as the anchoring element in the first step of the revenue recognition methodology. The Board tentatively decided that the anchoring element for a revenue transaction should be identified as (1) an item of information that meets the definition of an asset that is a receivable or (2) the receipt of consideration before a receivable arises.

Similarly, the Board discussed stakeholder feedback regarding the understandability and application of the consumption of net assets as the anchoring element in the first step of the expense recognition methodology. The Board tentatively decided that the anchoring element for an expense transaction should be identified as (1) an item of information that meets the definition of a liability that is a payable or (2) the provision of consideration before a payable arises.

Minutes of Meetings, June 1–2, 2022

The Board discussed the types of recognizable items of information that could potentially be identified as transactions, or as other events if not identified as transactions. The Board provided feedback on the issues identified and discussed the general direction the project staff should take in the development of proposals for future meetings. The Board did not make any tentative decisions.

Then the Board continued redeliberations on the suitable role of a binding arrangement by discussing whether the first step of the categorization methodology proposed in the Preliminary Views, Revenue and Expense Recognition, should be modified to include a requirement to identify the binding arrangement as opposed to assessing whether there was a binding arrangement. The Board tentatively decided to modify the first step to “identify a binding arrangement.” However, the Board directed project staff to further explore whether the categorization methodology could be simplified by assessing the transaction as the categorization unit of account, rather than the binding arrangement. Next, the Board considered whether a discussion of the characteristics of a binding arrangement—a rebuttable presumption of enforceability and economic substance—should be retained as basic assumptions without requiring that they be actively assessed. The Board tentatively decided that the two characteristics of a binding arrangement should be retained as part of the explanation of the model, but in the Basis for Conclusions.

The Board next considered stakeholder feedback regarding guidance for illegal or fraudulent activities that have economic consequences resulting in recognition but that cannot be viewed as transactions. The Board tentatively decided that the scope of the project should not include guidance for illegal or fraudulent activities, nor should they explicitly be identified as scope exclusions.

The Board then discussed circumstances in which a government has binding arrangements with similar characteristics and tentatively decided that a government can opt to apply a portfolio approach for categorization purposes. The Board also discussed circumstances in which multiple binding arrangements give rise to a single transaction and tentatively decided that such binding arrangements should be combined for purposes of identifying the categorization unit of account. Next, the Board discussed circumstances in which a single binding arrangement evidences multiple types of transactions. The Board tentatively decided to carry forward the proposal that the categorization unit of account in circumstances in which a single binding arrangement evidences multiple types of transactions is each individual transaction. Lastly, the Board considered the proposals in the Preliminary Views that (1) reassessment of categorization should be made only when the terms and conditions of the binding arrangement have changed significantly and (2) changes in the binding arrangement amount generally should not trigger reassessment. The Board tentatively decided to carry forward the proposals regarding reassessment.

Minutes of Meetings, April 19–21, 2022

The Board continued redeliberations about categorization by discussing enforceability in the context of binding arrangements. The Board tentatively decided to retain a rebuttable presumption of enforceability as a characteristic of a binding arrangement. Future deliberations will address whether the assessment of enforceability should be made as part of the scope or in the categorization step. The Board also tentatively decided that liabilities that arise from moral or constructive obligations should continue to be in the scope of this project.

Minutes of Meetings, March 8–10, 2022

The Board continued redeliberations by discussing the foundational principles of this project’s model in Chapter 2 of the Preliminary Views, Revenue and Expense Recognition. The Board began by discussing the recognition methodology proposed for revenues and expenses. The Board specifically considered whether wholly unperformed contracts give rise to elements of financial statements in the scope of this project and tentatively decided to retain the recognition methodology proposed in the Preliminary Views, which is not based on recognition of wholly unperformed contracts. In support of that tentative decision, the Board also tentatively decided that a binding arrangement should be defined broadly to include contracts that (1) are unilateral, (2) are conditional, and (3) can be terminated without cause. The Board thereby rejected limiting the definition of binding arrangements to firm commitments.

Next, the Board discussed the role of collectibility in categorization of transactions. The Board tentatively decided not to include collectibility as a scope criterion for transactions included in the scope of this project because, generally, governments engage in revenue transactions motivated by their public purpose and, therefore, collectibility is not the predominant concern. Because a collectibility threshold is not proposed as a scope boundary, the Board also tentatively decided not to retain alternative revenue recognition models—specifically, the installment method and the cost recovery method—that are applicable to transactions in the scope of this project.

Minutes of Meetings, January 25–27, 2022

The Board continued redeliberations on the Revenue and Expense Recognition project by discussing binding arrangements, the first step in the four-step categorization methodology proposed in the Preliminary Views, Revenue and Expense Recognition. The Board began by discussing the level of assessment for categorization and tentatively decided that components of consideration are not a suitable categorization unit of account for this project. The Board tentatively reaffirmed its decision that the binding arrangement is the most suitable categorization unit of account. The Board tentatively decided that there should be two exceptions for the categorization unit of account: (1) If the binding arrangement includes more than one type of transaction and (2) If the transaction is evidenced by more than one binding arrangement. The Board tentatively decided that a definition of transaction should be developed to resolve the two exceptions.

Next, the Board discussed economic substance. The Board tentatively decided to retain economic substance as a characteristic of the binding arrangement. The Board also tentatively decided to retain the description of economic substance presented in the Preliminary Views, which proposed that economic substance results in an expected change in the risk, amount, or timing of the government’s cash flows, or an expected change in the government’s service potential.

The Board also began redeliberations about the five model assumptions proposed in Chapter 2 of the Preliminary Views. The Board tentatively decided to retain model assumptions 1 and 2 as part of the revenue and expense recognition model, as follows: revenues and expenses are of equal importance in resource flows statements; and revenues and expenses should be categorized independently and not in relation to each other. With regard to Model assumption 3, the Board tentatively agreed to retain the model assumption but will further consider a positive phrasing of this principle. A possible approach is to state that, for accounting and financial reporting purposes, the government is an economic entity, and generally acts as the principal in its revenue and expense transactions.

The Board also tentatively decided to retain model assumptions 4 and 5 as follows: symmetry should be considered, to the extent possible, in the application of the three components of the model; and a consistent viewpoint, from the resource provider perspective, should be applied in the analysis of revenues and expenses. Lastly, the Board tentatively decided to retain the expense recognition model proposed in the Preliminary Views, which was developed from the five model assumptions and does not focus on the consumption of resources acquired in an expense transaction.

Minutes of Meetings, December 14–16, 2021

The Board discussed how the concept of relevant component part as used in the Financial Reporting Model project compares with the concept of recognition unit of account as used in the Revenue and Expense Recognition project. The Board tentatively concluded that they are different accounting notions and should be retained as such in the respective projects. In addition, the Board provided direction about coordinating the work of the projects such that the resulting guidance will be aligned and not conflicting, including common terminology when possible.

Minutes of Meetings, November 2–4, 2021

The Board reviewed and discussed the results of the field test and the user forums, which were conducted to obtain feedback on the Preliminary Views, Revenue and Expense Recognition. The discussion was educational; the Board did not deliberate any issues and no decisions were reached.

Minutes of Meetings, August 10–12, 2021

The Board continued redeliberations on the Revenue and Expense Recognition project by discussing stakeholder feedback and general considerations on the Preliminary Views, Revenue and Expense Recognition, related to scope.

  The Board began by discussing the general approach to the scope of the project. First, the Board tentatively decided to retain the scope approach developed in the Preliminary Views, a broad positive scope statement for revenue and expense recognition with the following three scope exclusion principles: (1) guidance related to capital assets or inventory; (2) guidance related to financial instruments; and (3) guidance related to postemployment benefits, compensated absences, or termination benefits. Next, the Board tentatively decided that the scope of the project should not be defined in the context of contracts with customers.

  The Board continued by discussing stakeholder feedback on Scope Exclusion Principle (1) and tentatively reaffirmed its decision not to include guidance related to capital assets and inventory in the scope of the project. The Board also discussed the possibility of reconsidering decisions with regard to certain capital asset transactions when considering measurement proposals.

  Next, the Board discussed stakeholder feedback on Scope Exclusion Principle (2) and tentatively reaffirmed its decision not to include guidance related to financial instruments in the scope of the project, except for contracts that meet the normal purchase and normal sales exception as provided in paragraph 14 of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. In addition, the Board tentatively reaffirmed its decision to include transactions with characteristics of both loans and grants in the scope of the project. The Board also tentatively decided to retain consideration provided in the form of a financing component when developing measurement guidance in the project.

  The Board then discussed stakeholder feedback on Scope Exclusion Principle (3) and tentatively reaffirmed its decision not to include guidance related to postemployment benefits, compensated absences, or termination benefits in the scope of the project. In addition to the three scope exclusion principles, the Board also tentatively proposed to not consider in the scope of the project any guidance issued after Statement No. 65, Items Previously Reported as Assets and Liabilities, or being developed in projects on the Board’s current technical agenda.

  The Board continued its redeliberations by discussing guidance that had been identified in the Preliminary Views as being in the scope of the project. The Board first discussed guidance related to special assessments and tentatively reaffirmed its decision that revenue and certain expense recognition guidance for special assessments is in the scope of the project; however, the Board tentatively decided that reexamination of Statement No. 6, Accounting and Financial Reporting for Special Assessments, is not considered in scope. Next, the Board tentatively reaffirmed its decision that revenue recognition for escheated property is in the scope of the project, if applicable; however, the Board tentatively decided that reexamination of escheat guidance provided in Statement No. 21, Accounting for Escheat Property, is not considered in scope. The Board then tentatively reaffirmed its decision that the revenue and expense recognition guidance for pass-through grants in paragraph 5 of Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, is in the scope of this project; however, the Board tentatively decided that reexamination of criteria for financial and administrative involvement is not considered in scope.

  The Board next discussed revenue and expense recognition guidance for exchange and nonexchange transactions. The Board tentatively reaffirmed its decision that the recognition guidance for exchange revenue in paragraphs 23–28 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements, is in the scope of this project. Next, the Board tentatively reaffirmed its decision that the revenue and expense recognition guidance for cable television systems in paragraphs 397 and 398 of Statement 62 is in the scope of this project. Then the Board tentatively reaffirmed its decision that the expense recognition guidance for exchange transactions in paragraph 16 of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, is in the scope of this project. Additionally, the Board tentatively reaffirmed its decision that the revenue and expense recognition guidance for nonexchange transactions in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, is in the scope of this project.

  The Board then tentatively reaffirmed its decision that the contingency guidance in paragraphs 96–113 of Statement 62 is not in the scope of the project.

  Next, the Board discussed guidance that had been identified in the Preliminary Views as outside the scope of the project. The Board tentatively reaffirmed its decision not to include the guidance for regulated operations in paragraphs 476–500 of Statement 62. Then the Board tentatively reaffirmed its decision not to include the guidance for interfund activity in paragraph 112 of Statement 34 and in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, in the scope of the project.

  The Board continued its deliberations on scope by discussing topics that are partially in the scope of other guidance and tentatively decided to include the revenue and expense recognition guidance for service components, which was excluded from the scope of Statements No. 87, Leases; No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements; and No. 96, Subscription-Based Information Technology Arrangements.

  The Board then discussed other scope topics related to the methods of communication as provided in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements, and tentatively reaffirmed its decision that topics related to the presentation of revenues and expenses (such as classification of operating and nonoperating revenue or program revenue) are not in the scope of the project. Next, the Board tentatively reaffirmed its decision to exclude topics related to required supplementary information, supplementary information, and notes to financial statements from the scope of the project.

  The Board tentatively decided to postpone consideration of whether to address guidance for the governmental funds measurement focus and basis of accounting in the project. Lastly, the Board tentatively decided to postpone deciding whether to provide guidance in the project for revenue recognition for certain intangible assets identified as outside the scope of Statement No. 51, Accounting and Financial Reporting for Intangible Assets, and Statements 87, 94, and 96.

Minutes of Meetings, June 30–July 2, 2021

The Board continued deliberations on the Revenue and Expense Recognition project by discussing stakeholder feedback related to the proposed categorization methodology and comprehensive model.

The Board discussed stakeholder feedback recommending the Board revert back to existing guidance and move forward with an exchange/nonexchange classification. The Board tentatively decided to refine and improve the categorization methodology proposed in the Preliminary Views, Revenue and Expense Recognition, paying special attention to the categorization of grants and addressing the concerns raised by stakeholders regarding each of the steps of the categorization.

Minutes Archive

Revenue and Expense Recognition—TENTATIVE BOARD DECISIONS TO DATE

The Board tentatively decided the following:

• The relevant component part used in the short-term method and the recognition unit of account used in the revenue and expense project are two different accounting notions and should be retained as such.

Scope:

• Scope should be defined as a broad positive statement for recognition and measurement of revenue and expense, with the following three scope exclusion principles:
  • Scope Exclusion Principle 1—not to include guidance related to capital assets and inventory in the scope of the project. As a result, the following pronouncements are outside the scope of the project:
    • Statement No. 18, Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs
    • Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
    • Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations
    • Statement No. 51, Accounting and Financial Reporting for Intangible Assets
    • Statement No. 83, Certain Asset Retirement Obligations
    • Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period.
• Scope Exclusion Principle 2—not to include guidance related to financial instruments in the scope of the project, except for contracts that meet normal purchase and normal sales exceptions as specified in paragraph 14 of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. As a result, the following pronouncements are outside the scope of the project:
  • Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements
  • Statement No. 7, Advance Refundings Resulting in Defeasance of Debt
  • Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues
  • Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities
  • Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions
  • Statement No. 30, Risk Financing Omnibus
  • Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools
  • Statement No. 40, Deposit and Investment Risk Disclosures
  • Statement No. 52, Land and Other Real Estate Held as Investments by Endowments
  • Statement 53
  • Statement No. 59, Financial Instruments Omnibus
  • Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions
  • Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees
  • Statement No. 72, Fair Value Measurement and Application
  • Statement No. 79, Certain External Investment Pools and Pool Participants
  • Statement No. 86, Certain Debt Extinguishment Issues
  • Statement No. 87, Leases
  • Statement No. 91, Conduit Debt Obligations
  • Statement No. 93, Replacement of Interbank Offered Rates
  • Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements
  • Statement No. 96, Subscription-Based Information Technology Arrangements
  • Interpretation No. 1, Demand Bonds Issued by State and Local Governmental Entities
  • Interpretation No. 3, Financial Reporting for Reverse Repurchase Agreements
  • Interpretation No. 4, Accounting and Financial Reporting for Capitalization Contributions to Public Entity Risk Pools
  • Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements.
• Scope Exclusion Principle 3—not to include guidance for postemployment benefits, compensated absences, or termination benefits in the scope of the project. As a result, the following pronouncements are outside the scope of the project:
  • Statement No. 16, Accounting for Compensated Absences
  • Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, paragraphs 7–13
  • Statement No. 47, Accounting for Termination Benefits
  • Statement No. 67, Financial Reporting for Pension Plans
  • Statement No. 68, Accounting and Financial Reporting for Pensions
  • Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date
  • Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68
  • Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
  • Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
  • Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans
  • Statement No. 82, Pension Issues
  • Statement No. 85, Omnibus 2017, paragraphs 8–25
  • Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans.
• In addition to the three scope exclusion principles, guidance issued after Statement 65, including guidance being developed in projects on the Board’s current technical agenda, is outside the scope of the project.
• The following topics are considered in the scope of the project:
  • Revenue recognition guidance for exchange transactions provided in paragraphs 23–28 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
  • Expense recognition guidance for exchange transactions provided in paragraph 16 of Statement No. 34, Basic Financial Statements —and Management’s Discussion and Analysis —for State and Local Governments
  • Revenue and expense recognition guidance for nonexchange transactions provided in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions
  • Transactions with characteristics of both loans and grants
  • Revenue and certain expense recognition guidance for special assessments (reexamination of Statement No. 6, Accounting and Financial Reporting for Special Assessments, is not considered in scope)
  • Revenue and expense recognition for pass-through grants provided in paragraph 5 of Statement 24 (reexamination of criteria for financial and administrative involvement is not considered in scope)
  • Revenue recognition of escheated property, if applicable (reexamination of escheat guidance provided in Statement No. 21, Accounting for Escheat Property, is not considered in scope)
  • Revenue and expense recognition guidance for cable television systems provided in paragraphs 397 and 398 of Statement 62
  • Revenue and expense recognition guidance of service components excluded from the scope of Statements 87, 94, and 96
  • Consideration provided in the form of a financing component is in the scope developing measurement guidance.
• The following topics are excluded from the scope of the project:
  • Reexamination of contingency guidance provided in paragraphs 96—113 of Statement 62
  • Guidance for regulated operations provided in paragraphs 476-500 of Statement 62
  • Guidance for interfund activity provided in paragraph 112 of Statement 34 and in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, as well as reclassifying transactions between the primary government and a blended component unit as internal activity
  • Topics related to the presentation of revenues and expenses, such as classification of operating and nonoperating revenue or program revenue
  • Topics related to required supplementary information, supplementary information, and notes to financial statements.
• Decisions about whether to address the following topics in the scope of the project are postponed:
  • Donation of capital assets
  • Revenue recognition for certain intangible assets out of scope of Statements 51, 87, 94, and 96.
  • Guidance on governmental funds measurement focus and basis of accounting, including guidance provided in paragraphs 62–69 and 70–73 of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles.
• The scope should not be defined in the context of contracts with customers.
• A collectability threshold should not be included as a scope boundary for transactions in this project.
• Alternative recognition methods for transactions in the scope of this project—specifically, the installment method and the cost recovery method—should not be retained.
• Moral and constructive obligations are included in the scope of the project
• The scope of the project does not include guidance related to fraudulent or illegal activities, though they will not be explicit scope exclusions.

Foundational Principles:

• The following five model assumptions are retained as part of the underpinnings of the revenue and expense recognition model:
  • Model assumption 1—revenues and expenses are of equal importance in resource flows statements.
  • Model assumption 2—revenues and expenses should be categorized independently and not in relation to each other.
  • Model assumption 3—establishing that the government is not acting as an agent for the citizenry, with the intent to prevent netting for revenues and expense should be continued.
  • Model assumption 4—symmetry should be considered, to the extent possible, in the application of the three components of the model.
  • Model assumption 5—a consistent viewpoint, from the resource provider perspective, should be applied in the analysis of revenues and expenses.
• The expense recognition model based on the five model assumptions will be retained.
• The recognition methodology proposed in the Preliminary Views should be retained as the structural basis for the project; wholly unperformed contracts should not be recognized.
  • Wholly unperformed contracts should not be recognized.
  • Refundability should not be considered a relevant recognition attribute for revenue or expense transactions.
  • The recognition attributes used to determine the applicability to a reporting period should be limited to be applied to transactions in the scope of this project with a prohibition for analogy.
  • Revenue Recognition Methodology
    • The anchor for a revenue transaction should be identified as (1) an item of information that meets the definition of an asset that is a receivable or (2) the receipt of consideration before a receivable arises.
    • A liability should be recognized for consideration received in advance of an enforceable claim that is a receivable in both Category A and Category B revenue transactions.
      • Recognition of a deferred inflow of resources should be based on the flow’s applicability to a reporting period.
        • For Category A revenue transactions, the characteristic used to determine applicability
          to a reporting period is the satisfaction of a performance obligation.
        • For Category B revenue transactions, the characteristic used to determine the applicability
          to a reporting period is the satisfaction of time requirements.
          
  • Expense Recognition Methodology
    • The anchor for an expense transaction should be identified as (1) an item of information that meets the definition of a liability that is a payable or (2) the provision of consideration before a payable arises.
    • A prepaid asset should be recognized for resources provided in advance of a present obligation that is a payable in both Category A and Category B expense transactions.
    • Recognition of a deferred outflow of resources should be based on the flow’s applicability to a reporting period.
      • For Category A expense transactions, the characteristic used to determine applicability to a reporting period is the satisfaction of a performance obligation.
      • For Category B expense transactions, the characteristic used to determine the applicability to a reporting period is the satisfaction of time requirements.

Categorization:

• The categorization methodology proposed in the Preliminary Views will be refined and improved.
• Binding Arrangement:
  • The first step of the categorization methodology should be modified to a requirement to “identify the binding arrangement.”
  • Components of consideration are not a suitable categorization unit of account for purposes of the categorization methodology.
  • Binding arrangements are the most suitable categorization unit of account, with two exceptions:
    • The binding arrangement includes more than one type of transaction
    • A transaction is evidenced by more than one binding arrangement.
      • The binding arrangements should be combined for purposes of identifying the categorization unit of account.
        
    • Reassessment of categorization should be made only when the terms and conditions of the binding arrangement have changed significantly, and changes in the binding arrangement amount generally should not trigger reassessment.
    • A definition of transaction will be developed.
    • Economic substance is characteristic of the binding arrangement
    • Economic substance results in an expected change in the risk, amount, or timing of the government’s cash flows, or an expected change in the government’s service potential.
    • Binding arrangements should be considered as broadly as possible to include contracts that (1) are unilateral, (2) are conditional, and (3) can be terminated without cause, thereby rejecting limiting the definition to firm commitments.
    • Rebuttable presumption of enforceability should be retained as a characteristic of the binding arrangement.
    • Rebuttable presumption of enforceability and economic substance should be retained as part of the explanation of the model in the Basis for Conclusions.
    • For circumstances in which a government has binding arrangements with similar characteristics, the government can opt to apply a portfolio approach.

When a revenue or an expense event is recognized?

What is it called when companies recognize revenue in the period when events and transactions occur?

What is it called when an expense is paid in cash before it is used?

Which of the following accounting systems recognizes expenses as they are paid and recognizes revenue as it is as generated?