FASB and IASB Agree on “Probability” Usage Just Not Its Meaning

In their deliberations on the revenue recognition project, the FASB and the IASB have been maintained their goal of a converged standard absent of any significant differences (as noted by the Journal of Accountancy, http://www.journalofaccountancy.com/NR/exeres/6D8FDD39-A6DA-422B-9773-BDC4BBCF5346.htm?WBCMODE=PresentationUnpublished&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JournalOfAccountancy+%28Journal+of+Accountancy%29)

Well, as of October 30th, that ship has sailed.

At their October 30th meeting, the combined boards discussed adding a collectibility criteria to their revenue recognition guidance. After some debate, the Boards agreed to add the criteria, which includes a “probability” threshold.

And, of course, that’s where the problem starts. You see, the FASB and the IASB disagree on the definition of “probable”. In its basic guidance, the IASB defines probable as “more likely than not”. In its related guidance, the FASB has indicated that probable implies “likely to occur”. Apparently, the FASB threshold is “higher”, usually discussed as likelihood of 70% or higher.

During the debate, one board member noted that even though the two Boards might express the same notion about collectibility, i.e. that collectibility should be “probable”, their meaning will differ.

Hopefully, in drafting the final standard, the staff can resolve this convergence difference.

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About docjonz

I am an Associate Professor of accounting at Hofstra University in Hempstead, NY. Additionally, I have more than 30 years of professional accounting experience in various capacities including auditing, accounting standard setting and corporate accounting policy.
This entry was posted in Accountant, Financial Accounting, IFRS, IFRS Adoption in U.S. and tagged , , , , , . Bookmark the permalink.

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