Revenue

The AcSB deliberated feedback on its Exposure Draft, “Revenue – Upfront Nonrefundable Fees or Payments.” The Board approved the issuance of the amendments, subject to a written ballot. The Board plans to issue the amendments in Part II of the Handbook in May 2024.

The AcSB continued its discussion on feedback received from its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee on concerns raised with Section 3400, Revenue related to accounting for upfront non-refundable fees or payments. The Board approved an exposure draft to indefinitely defer the effective date of these amendments, with early application permitted, until their Evaluating the Preface project is complete. This exposure draft will also propose a new disclosure requirement for entities recognizing upfront non-refundable fees or payments. The Board expects to issue this exposure draft in November 2023 with a 90-day comment period.

The Private Enterprise Advisory Committee received an update on the AcSB’s recent decision to issue an exposure draft to amend Section 3400, Revenue. The proposed amendments are to indefinitely defer the effective date of application guidance and illustrative examples relating to accounting for upfront non-refundable fees or payments, and to introduce a new disclosure requirement for entities recognizing upfront non-refundable fees or payments in revenue entirely up front. The Committee recommended adding further details in the Basis for Conclusions document to clarify why the Board is proposing the new disclosure requirement. The Board will consider the Committee’s feedback at its meeting in September 2023. The Board plans to issue an exposure draft in October 2023.

The Not-for-Profit Advisory Committee received an update on the AcSB’s March 2023 discussions and tentative decisions to address stakeholders’ concerns with recent amendments to Section 3400, Revenue, related to accounting for upfront non-refundable fees or payments.

The Committee provided feedback on the AcSB’s tentative decision to issue an exposure draft to indefinitely defer the effective date of these amendments, with early application permitted, until the project on Evaluating the Preface is complete. The Committee also provided feedback on the Board’s tentative decision to propose a new disclosure requirement in this exposure draft for entities recognizing non-refundable initiation and life membership fees in revenue up front.

The AcSB will consider the feedback from its Not-for-Profit Advisory Committee and Private Enterprise Advisory Committee at the June 2023 Board meeting.

The Private Enterprise Advisory Committee received an update on stakeholder comments on the AcSB’s Exposure Draft “Revenue – Upfront Non-refundable Fees or Payments.” This Exposure Draft proposed deferring the effective date of the previously issued amendments for upfront non-refundable fees or payments to periods beginning on or after January 1, 2025.

The Committee then discussed possible alternatives to address stakeholder concerns about the amendments. Committee members considered whether additional illustrative examples, application guidance or an exception to the guidance would result in more decision-useful financial reporting outcomes for financial statement users.

The Committee also discussed whether any potential exception to the upfront, non-refundable fees guidance should apply to for-profit entities and non-for-profit organizations that have transactions with similar characteristics.

The AcSB will consider the feedback from its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee at a future Board meeting in Q1 2023.

The AcSB completed its deliberations of stakeholder feedback on the Exposure Draft, “Revenue – Upfront Non-refundable Fees or Payments.” The Board approved the issuance of the proposal to defer the effective date of the previously issued amendments to Section 3400, Revenue related to upfront non-refundable fees or payments subject to drafting and a written ballot. The Board plans to issue the amendments in mid-November 2022.

The AcSB continued its discussion on feedback received from its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee on recent amendments to Section 3400, Revenue, related to accounting for upfront non-refundable fees or payments. Stakeholders indicated that the amendments sometimes result in information that is not decision-useful, particularly for entities collecting non-refundable initiation or life membership fees. The Board decided to issue an exposure draft to defer the effective date of these amendments while the Board analyzes the issues raised by stakeholders and determines what, if any, action is required to address these concerns. The Board expects to issue an exposure draft on July 15, 2022, with a 30-day comment period. 

The Not-for-Profit Advisory Committee discussed implementing recent amendments to Section 3400, Revenue in Part II of the Handbook, regarding the accounting for upfront non-refundable fees or payments. The Committee indicated that these amendments will result in a change in practice for many NFPOs, particularly member-benefit organizations. The Committee indicated that this change in practice could be onerous and will not provide information that is useful to the users of the financial statements of member-benefit organizations.

The Committee advised the AcSB to defer the effective date of the amendments related to upfront non-refundable fees while the Board considers the application challenges stakeholders raised.

The AcSB will consider the comments from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee at its meeting on May 18, 2022.

The Private Enterprise Advisory Committee discussed implementation of recent amendments to Section 3400, Revenue, regarding the accounting for upfront non-refundable fees or payments. The Committee discussed stakeholder feedback that the amendments may result in a change to how private member clubs were previously accounting for upfront initiation fees using Part III of the CPA Canada Handbook – Accounting. Committee members highlighted that some private clubs applying Part II of the Handbook could experience a similar change in their accounting for revenue as a result of the amendments.

The AcSB will consider the Committee’s feedback at its meeting on May 18, 2022.

The AcSB discussed feedback received on its Exposure Draft, “Revenue,” in comment letters and during roundtable consultations with stakeholders. The Board also considered recommendations from its Private Enterprise Advisory Committee to address stakeholder feedback. The Board decided to:

• clarify that the guidance related to determining the unit of account and whether to combine or segment contracts is applicable to all types of revenue transactions;
• provide decision trees for the identification of units of account and allocation of revenue;
• revise the guidance for measuring the degree of completion based on the ratio of costs incurred to total estimated costs to allow the cost of uninstalled materials not specially produced or fabricated for the project delivered to the job site to be included in the costs incurred to date; and
• develop illustrative examples for the following:
  • software contracts containing multiple-elements;
  • contract losses when using the percentage of completion method;
  • computation of income earned for the period under the percentage of completion method when using “Alternative B”; and
  • upfront non-refundable fees or payment related to license contracts.

The AcSB also provided comments on the proposed Handbook text. The Board approved the issuance of final amendments, subject to final drafting and a written ballot.

The AcSB plans to issue the final amendments no later than the fourth quarter of 2019.

The Committee considered stakeholder feedback on the AcSB Exposure Draft – Revenue and provided advice on staff’s recommendations based on the feedback. Committee members recommended that the Board:

• clarify that the guidance related to determining the unit of account and whether to combine or segment contracts is applicable to all types of revenue transactions;
• provide decision trees for the identification of units of account and allocation of revenue;
• include the residual approach for estimating the stand-alone selling price of an item in multiple-element arrangements when such a stand-alone selling price is not directly observable; and
• include an illustrative example for the accounting of upfront non-refundable fees or payments in respect of license agreements.

The Committee also discussed feedback and staff recommendations related to:

• costs to include when measuring the degree of completion based on the ratio of cost incurred to total estimated costs;
• criteria to consider when accounting for bill and hold arrangements;
• the disclosure requirements for different arrangements; and
• transition provisions.

The Board will consider the Committee’s feedback at its September 2019 meeting.

The AcSB continued its discussion on the proposed amendments to Section 3400, Revenue, in Part II of the Handbook. The Board considered the feedback from its Private Enterprise Advisory Committee on the proposed transitional provisions and effective date of the amendments. Based on the Committee’s feedback, the Board decided to propose transitional relief for the amendments relating to the percentage of completion method and multiple element arrangements. The Board also decided that the proposed effective date for the amendments will be for fiscal years beginning on or after January 1, 2021.

The AcSB also considered Committee members’ comments arising from their fatal flaw review of the proposed amendments. Based on the feedback, the Board proposes to:

• clarify the proposed guidance for using input and output measures to determine the degree of completion of a contract when using the percentage of completion method;
• include proposed guidance on the accounting for expected losses when it is probable that total contract costs will exceed total contract revenue when using the percentage of completion method; and
• simplify the proposed guidance for determining the stand-alone selling price of a good or service when accounting for multi-element arrangements.

 The Board plans to issue the exposure draft no later than the second quarter of 2019.