At the end of last year, the International Accounting Standards Board issued proposals on revenue recognition that could fundamentally change the way that many businesses recognise income. The proposals appear in a discussion paper (DP), Preliminary Views on Revenue Recognition in Contracts with Customers, issued jointly by the IASB and the US Financial Accounting Standards Board. The proposals in the DP apply in principle to nearly all contracts with customers, including oral and implicit ones. But the two boards are not sure whether they should apply to some financial instruments, insurance contracts and leasing contracts. They will consider these questions at a later stage. The key proposal in the DP is that a business should recognise revenue when it satisfies a performance obligation in a contract. A business satisfies a performance obligation when it transfers a promised asset to the customer. The asset is transferred when the customer has control of it. Services are also assets and a customer takes control of a service when it receives it.
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