NACUBO Responds to FASB’s Revenue Recognition Proposal

October 22, 2010

The latest FASB proposal, issued amid a flurry of Exposure Drafts in 2010, would affect financial reporting and revenue recognition for exchange contracts that provide goods or services. Independent institutions with sponsored research would be required to recognize revenue only upon the attainment of performance obligations.

FASB's proposed Accounting Standards Update, "Revenue from Contract with Customers," seeks to create a single revenue recognition standard for International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP). The single standard would be applied across various industries globally. Because revenue is a significant component of financial reporting, the Exposure Draft (ED) appears to raise the profile of the international convergence effort. Since not-for-profit entities are not included within the scope of the FASB's convergence efforts with IFRS, this major proposal raises NACUBO's level of concern about the future of not-for-profit standard setting and compliance with authoritative guidance that results from convergence efforts. The ED would update topic 605 of FASB's Codification, the single authoritative source of GAAP for entities that follow FASB.

A performance obligation is an enforceable promise, whether explicit or implicit, in a contract with a customer that transfers goods or services to the customer. Because research projects can extend over multiple years and lack intermittent defined deliverables, FASB's proposed guidance could require that revenue be recognized much differently than under current practice. Hundreds of independent institutions with all types of research grants would be impacted. The ED also requires predictive disclosures of future transactions at a level of detail that would be burdensome and provide little value to the readers of higher education financial statements.

NACUBO will present the objections and questions raised in our comment letter in greater detail in a November roundtable with FASB. Although the comment deadline has passed, NACUBO encourages independent institutions to consider providing comments to FASB before the November 23, 2010, roundtable date.