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Business and Policy Areas
Business and Policy Areas

NACUBO Responds to FASB’s Revenue Recognition Proposal

March 22, 2012

NACUBO asks the Financial Accounting Standards Board (FASB) to clearly exclude sponsored research grants from the scope of the revenue recognition exposure draft.

On March 13, 2012, NACUBO submitted a formal comment letter to the revised proposed Accounting Standards Update, "Revenue Recognition (Topic 605): Revenue from Contracts with Customers" (the ASU). A contract is an agreement with outputs that can have commercial value, while a grant arrangement focuses on the performance of the research rather than the creation of an output. NACUBO comments, developed with input from the Accounting Principles Council (APC), note that because there is no expectation of an output with commercial value from sponsored research activities, such agreements do not meet the definition of a contract with a customer. Consequently NACUBO asked the FASB to specifically exclude these grants from the scope of the ASU.

The ASU does a better job of specifically excluding certain research activities that involve a contract (rather than a grant) between the sponsor and the university. Such contracts would be excluded from the scope of the ASU if they are considered "collaborative arrangements." NACUBO comments note that the ASU is focused on entities that manufacture a product or provide a service such as consulting. Because both research grants and research contracts undertaken by universities do not neatly fit into either of these categories, NACUBO asks the FASB to address the definitions of both a customer and a collaborative arrangement in both the ASU and the Codification to include contracts where no product or service is created for commercial marketing.

A clear exclusion is important because terms used in the ASU to define certain excluded research activities do not adequately address the unique research mission of higher education institutions. Without clear definitions, NACUBO fears that independent institutions and their auditors may spend undue time applying potentially inconsistent judgment when evaluating these important and significant sources of revenue. Finally, NACUBO requests that the FASB reconsider proposed and potentially lengthy reconciliation-type disclosure requirements when contract revenue covered by the ASU is not a significant source of revenue for a reporting entity.

The complete comment letter is available on NACUBO's website.


Sue Menditto
Director, Accounting Policy