Are you grappling with the complexities of the amendments under HB 3400 – revenue recognition standards? Perhaps you are only struggling with ensuring sufficient documentation to support compliance with the requirements. You’re not alone.
The landscape of revenue recognition has undergone fundamental changes in recent years, with both US GAAP and IFRS moving away from a risk-and-rewards model to a control-based approach. This shift, coupled with the removal of previously issued EIC documents, has left many organizations and accounting firms seeking additional guidance as to the appropriate application of revenue recognition under ASPE.
In response to these challenges, the Accounting Standards Board (AcSB) has amended HB 3400 – revenue recognition and has added significant guidance in the appendix.
Staying True to Principles-Based Guidance
Rather than completely overhauling the existing principles-based approach in Section 3400, the AcSB has opted to retain the risk-and-rewards model and augment it with explanatory guidance. This approach is designed to provide clarity and direction, ensuring that ASPE application still adheres to the fundamental principles of revenue recognition.
Leveraging Past Wisdom
To help businesses make sense of the changes, the AcSB is drawing on a wealth of existing guidance. This includes insights from various sources such as superseded guidance in Part V of the Handbook issued by the Emerging Issues Committed (EICs), IFRS Standards that were in effect pre-2018 (such as IAS 11, Construction Contracts, and IAS 18 Revenue), and pre-2018 U.S. GAAP standards.
Understanding the Costs
The AcSB has acknowledged that there are potential additional costs, particularly in the case of the entities applying the percentage of completion method. These expenses might include the acquisition and tracking of necessary data, increased accounting costs, and perhaps even retaining expert advice, such as engineers or architects.
Clearline Consulting’s Helpful Toolkit
To assist firms with the implementation of this guidance, Clearline Consulting has made available a comprehensive HB 3400 Revenue checklist. This resource covers not only general compliance but also offers sample memorandums. This toolkit can be invaluable in ensuring that your firm is providing sufficient documentation related to revenue recognition in your engagement files.
We have split these resources into two products; one for firms who work with clients applying the completed contract or the percentage of completion method and another for firms not engaged in these sectors.
General resources for all firms:
- Comprehensive HB 3400 Revenue checklist
- Sample memorandums for:
- Bill and hold arrangements
- Groups of contracts
- Multiple-element arrangements
- Reporting revenue gross or net
- Sale of goods
Advanced resources for firms that include completed contract and/or percentage of completion:
- All the above-noted resources are included with the addition of:
- Sample memorandum for the percentage of completion
- Sample worksheet with a work-in-progress (WIP) calculator
The Challenge of Up-Front Non-Refundable Fees
One notable point is that Clearline Consulting’s templates do not address up-front non-refundable fees. This specific aspect has proven challenging, particularly for various types of member benefit organizations. In response to significant feedback, the AcSB is re-evaluating its guidance to provide more clarity on this issue.
Also available is our CPD session, which is being hosted over Zoom on November 2nd [a recording is available for those who missed the session], reviewing the amendments to HB 3400, Revenue Recognition. Visit our online store for these and many other resources.
