GASB is currently looking to address expanded guidance on revenue for classification and recognition through one of two primary ways:
- Exchange/Non-Exchange Model, or
- Performance/No-Performance Obligation Model
This blog will provide a brief overview of the Exchange Model.
The Exchange Model
The Exchange Model classifies an exchange transaction as when each party receives and gives up essentially equal values. For example, in the case of water and electricity, the consumer is charged a rate based upon the costs incurred related to maintenance, construction, distribution, generation, administration and other items.
The Exchange Model classifies a non-exchange transaction as when a government gives or receives value without directly receiving or giving equal value in exchange. For example, a tax levy assessed on the value of a property that is utilized for services that may not affect the taxpayer during the year (like public safety or infrastructure maintenance). Or in the reverse, the government entity might provide something to a consumer without the consumer providing something of equal value (government grants for instance).
The Exchange model recognizes revenue for exchange transactions when the exchange is complete such as when the service has been provided after prepayment or when payment is received for a service provided previously. Revenue may also be recognized over time in the event of something like a percentage of completion contract. The invitation to comment specifies the criteria that must be met for recognition to take place for revenue and expenses.
Currently, the challenge with this model is related to the openness of how something might be valued and if what is being exchanged is equal or not.
Our next blog will discuss the performance obligation model. You can see further examples and specific information in the Invitation to Comment. Final comments must be submitted by April 27, 2018.