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Summary of CPC-S Comment Letter on Revenue Recognition
On October 22, CPC-S filed Comment Letter to express its views on the Financial Accounting Standards Board’s (FASB’s) Exposure Draft of a Proposed Accounting Standards Update, Revenue Recognition (Topic 605): Revenue from Contracts with Customers. In general, CPC-S disagrees most of the proposed standards from ED and suggests that those proposed standards should not be applied to private company financial statements.
The key points from the Comment Letter are listed as following:
1. The Exposure Draft defines core principle of Revenue Recognition, but the content of the proposed standard does not follow this core principle, even contradict it.
2. Revenue is a flow of an entity’s product to a customer; revenue is measured at an exit price; a new asset (promised compensation) is received at an input cost.
3. The users of private company financial statements and the users of public entity financial reports have different requirement. Private company users do not desire revenue recognition to be redefined as the change in periodic valuation of contract assets and obligations and not desire the measurement, recognition and disclosure of mutually unfulfilled contracts.
4. Implementing and applying the ED’s proposed standard will impose huge costs on private companies, with no benefit to private company financial statement users.
5. The starting point for recognizing revenue is not to first recognize and measure contracts.
6. CPC-S recommends that the FASB defer for a minimum of three years the effective date of this ED for nonpublic entities.
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