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Business and Policy Areas
Business and Policy Areas

FASB Considers Delaying Revenue Recognition Standard

April 20, 2015

UPDATE (May 5, 2015): The Financial Accounting Standards Board has issued a Proposed Accounting Standards Update "Revenue from Contracts with Customers, Deferral of the Effective Date" for public comment. The proposal would defer the effective date by one year, to FY19 for the vast majority of independent colleges and universities. The most significant impact for higher education concerns sponsored research grants. Comments are due by May 29, 2015.

Original news item: The Financial Accounting Standards Board (FASB) has voted to propose a one-year delay in implementing its standard on recognizing revenue from contracts with customers. FASB will issue a proposed Accounting Standards Update (ASU) which, if approved, would make the standard effective for public entities—including not-for-profit organizations that are conduit bond obligors or have other publicly traded debt—for fiscal years beginning after December 15, 2017 (FY19 for most colleges and universities). Nonpublic entities would apply the standard for fiscal years beginning after December 15, 2018 (FY20).

The standard affects all public, nonpublic, and not-for-profit entities that report under FASB standards. It applies to contracts entered into with customers that result in a transfer of goods or services, or a transfer of nonfinancial assets, not within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of the standard is for an organization to recognize revenue in a way that depicts the transfer of goods or services to customers in amounts that reflect the consideration (payment) to which the organization expects to be entitled.
Also required are enhanced disclosures intended to allow users to understand the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. Certain practical expedients are provided with regard to the disclosure requirements, including the exclusion of certain disclosures for contracts with durations of one year or less.

Impact on Higher Education

While the overall impact of the new standard is not expected to be significant on independent higher education institutions, the area of sponsored arrangements—in particular research grants—requires further attention and guidance. This is because many sponsored arrangements do not meet the definition of a contract with a customer, a contribution, or a collaborative arrangement as defined in the FASB Accounting Standards Codification.

Members of NACUBO's Accounting Principles Council (APC) have discussed this issue with FASB board members, staff, and members of the FASB/IASB Joint Transition Resource Group for Revenue Recognition. Those discussions have highlighted the need for further guidance in this area. At a recent liaison meeting with the FASB board, APC members discussed the possibility of accounting and reporting for sponsored arrangements in a manner similar to conditional contributions. In that case, there would be no change in the timing of revenue recognition: Revenue would be recognized as costs are incurred or as milestones are met. The only difference from current treatment would be an additional disclosure about the budgeted amount outstanding under sponsored arrangements as of the institution's year end.

APC members have also discussed the possibility of identifying another category of revenue that would fall between a contract with a customer and a pure contribution. The proposed delay in the implementation date will enable NACUBO and FASB to continue discussing this issue in hopes of determining the best approach for providing meaningful information to financial statement users with the least reporting inconsistency across institutions.


Sue Menditto
Director, Accounting Policy