It’s coming, are you ready for it? Do you remember the revenue recognition standards? In our last two blogs, we discussed the government accounting standards board working on a new revenue/expense recognition project. This has huge implications on government accounting. The research phase of the project has been completed and now the board is on the invitation to comment period. The comment period ends April 27, 2018. Are you ready to comment on it?
Our previous blogs (click here and here to read them) discussed different recognition criteria that is being considered to help you prepare for commenting. However, this project is also considering whether or not GASB Statements 33 and 36, issued in the 1990s, should be revised in light of concept statement number 4, Elements of Financial Statements, having been completed in 2007 and introducing two new elements to the financial statements, deferred inflows and deferred outflows of resources.
GASB Statement 33
We felt this would be a good time to refresh everyone on the basics of GASB Statement 33. The Board is evaluating whether to use performance obligations as a basis to recognize revenues for either exchange and/or nonexchange revenues. Currently, we have GASB 62 as our guidance on revenue recognition for exchange transactions, and we have GASB 33 and 36 for nonexchange transactions. The nonexchange transaction categories we currently follow are derived tax revenue, imposed nonexchange revenue, government mandated transactions and voluntary nonexchange transactions. Although there are four types of nonexchange transactions, there are only three ways to account for them. The last two types of transactions (government mandated and voluntary nonexchange transactions) are accounted for in the same way.
- GASB says to recognize revenues for derived tax revenues when the underlying exchange transactions has occurred. For example, when a business collects sales taxes for an exchange transaction they had, the government recognizes the revenues for their portion of the sales taxes.
- For imposed nonexchange transactions, GASB says to recognize it when an enforceable legal claim has arisen. For example, when a traffic ticket is issued, and all appeal processes have been exhausted, or the ticket has been paid, you would recognize the revenue.
- For the last two types of transactions, (government mandated and voluntary nonexchange transactions) you will recognize revenue when all eligibility requirements are met or when resources are received, whichever is first. Eligibility items are things like:
- time requirements
- characteristics of the recipients
- reimbursement of expenditures
- contingencies like matching requirements.
It is important to familiarize yourself with the old standards, so that you can comment on the new projects coming up on GASB’s agenda. To help you, GASB Statement 33 has a cheat sheet in Appendix C that summarizes all four types of nonexchange transactions. Take a look at that, and consider commenting on GASB’s revenue and expense recognition project before it’s too late.
Brian Hemmerle, CPA, CFE