![]() A performance obligation may be satisfied, and therefore, related revenues and expenses be recognized, all at once (known as “point in time”) over time. Recognition occurs upon the satisfaction of a performance obligation when (or as) one of the parties transfers control of a resource (the distinct good or service) to the other party. Performance obligations are represented by distinct goods or services within the binding arrangement. Category A Transactionsįor Category A transactions, revenues and expenses would be recognized based on the satisfaction of a performance obligation. The recognition of a transaction is based on if it is a Category A or Category B transaction as determined based on the four questions noted above. Possible examples of Category B transactions include taxes and special assessments, purpose-restricted grants, donations, and penalties and fees. Otherwise, it would be identified as a Category B transaction. Some examples of possible Category A transactions include fee-for-service arrangements, cost reimbursement-based grants, and most expenses. If the answer to all four questions above is “yes,” the transaction would be identified as a Category A transaction. If a transaction does not include a binding arrangement, the proposed revenue and expense recognition model does not apply to the transaction. ![]() Are the substantive rights and obligations interdependent?.Do the parties to the transaction have substantive rights and obligations?.Have the parties to the transaction approved the terms and conditions of the binding arrangement (there is mutual assent of the parties)?.Is there a binding arrangement (i.e., contract, grant agreement, memorandum of understanding, or legislation)?.Instead, the proposed guidance considers four questions, in sequential order, for both revenue and expense transactions to determine categorization: The Preliminary Views shift entirely away from current guidance, which requires an entity to evaluate whether a transaction is an exchange, exchange-like, or nonexchange transaction based on an assessment of equal value. Revenue and expense transactions occur in a wide range of circumstances and facts as such, the GASB believes that categorization needs determined first, prior to addressing the elements of recognition and measurement. The currently existing transaction-based guidance relies on specific definitions to describe the transactions that should be recognized and measured under that specific guidance (making the scope of the guidance very narrow). The proposed revenue and expense recognition model contains three components: categorization, recognition, and measurement. The GASB’s Revenue and Expense Recognition Model To address all of this, the GASB has issued Preliminary Views – Revenue and Expenses. The GASB’s goal is to provide a comprehensive model for the recognition of revenue and expense transactions to enhance the usefulness of the financial information used for making decisions or assessing a government’s accountability. The GASB has also seen increased complexity in applying its standards around revenue recognition and inconsistency across different segments of local government. As recent standard-setters such as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have tackled large revenue recognition projects and overhauls, it was just a matter of time before the Governmental Accounting Standards Board (GASB) would work on the development of a comprehensive revenue and expense recognition model.
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