Do you agree with the proposed price interdependence principle? If not, what principle would you recommend and why, for determining whether (a) to combine or segment contracts and (b) to account for a contract modification as a separate contract?

Yes. The G100 supports the approach to combining and segmenting contracts and changes to those contracts for the recognition of revenue. However, there are concerns about the practicality of determining whether price interdependency exists in respect of components of a contract or between contracts. It is suggested that further explanation/guidance is needed to assist interpretation of ‘price interdependence’.

The boards propose that an entity should identify the performance obligations to be accounted for separately on the basis of whether the promised good or service is distinct. Para 23 proposes a principle for determining when a good or service is distinct? Do you agree with that principle? If not, what principle would you specify for identifying separate performance obligations and why?

Yes. The G100 supports the proposed approach. Given that the financial statements are those of the entity the G100 believes that they should be prepared from the perspective of the entity and as such should reflect the business model/practices the entity adopts in separating performance obligations rather than be based on the business practices of other entities.

Do you think that the proposed guidance in paras 25-31 and related application guidance are sufficient for determining when control of a promised good or service has been transferred to a customer? If not, why? What additional guidance would you propose and why?

The G100 generally agrees that this approach is consistent with the Framework definition of an asset. The transfer of resources to another entity evidences the completion of the performance obligation and signals the recognition of revenue in many circumstances. However, the reliance on the control concept is likely to present difficulties in interpretation and application because the notion of control is used in different contexts in Accounting Standards and depends on the facts and circumstances in each case. For example, it is not clear from the Exposure Draft how the notion of control would be applied in practice in respect of long-term construction contracts and contracts for the provision of services where rights and obligations arise during the term of a contract before the physical transfer on completion.

The G100 believes that the recognition of revenue should reflect the entity’s performance of economic activities occurring under a contract as that activity occurs and the entity has claims against the customer as provided for in the contract.

Do you agree that an entity should recognize revenue on the basis of an estimated transaction price? If so, do you agree with the proposed criteria in para 38? If not, what approach do you suggest for recognizing revenue when the transaction price is variable and why?

Yes. In a principles regime the treatment of measurement uncertainty should be consistent in all Standards. The G100 considers that revenue should only be recognized when it can be measured reliably. The reliance on a reasonable estimation process does not preclude the existence of reliable measurement. The criteria outlined in para 38 appear to be reasonable and should be met as part of the process of measuring revenue.

Do you agree that the customer’s credit risk should affect how much revenue an entity recognizes when it satisfies a performance obligation rather than whether the entity recognizes revenue? If not, why?

No. The G100 does not support this approach because the impact of credit losses is a separate exercise from the generation of revenue. We do not believe that the netting of the results of two separate activities provides useful information to shareholders and other users.

Paras 44 and 45 propose that an entity should adjust the amount of promised consideration to reflect the time value of money if the contract includes a material financing component (whether explicit or implicit). Do you agree? If not, why?

Yes. While the G100 agrees with the conceptual basis of the proposed treatment we are concerned about the practicalities of applying the approach where the time value of money is not material to the transaction.

In Para 50 proposes that an entity should allocate the transaction price to all separate performance obligations in a contract in proportion to the stand-alone selling price (estimated if necessary) of the good or service underlying each of those performance obligations. Do you agree? If not, when and why would that approach not be appropriate, and how should the transaction price be allocated in such cases?

Yes. The G100 believes that a contract should be assessed as a whole when making decisions about whether it is impaired or onerous. We believe that the fact pattern of a contract should be the basis for the assessment of changes. For example, the initial basis of the contract may not always be appropriate and, at best, should be regarded as a starting point for a process of review, say, as a rebuttable presumption.

Do you think that the proposed requirements on accounting for the costs of fulfilling a contract are operational and sufficient? If not, why?

Yes. The G100 believes that contract origination costs should, as a principle, be treated consistently across all activities as well as insurance contracts and loan origination fees etc. 

Para 58 proposes the costs that relate directly to a contract for the purposes of (a) recognizing an asset for resources that the entity would use to satisfy performance obligations in a contract and (b) any additional liability recognized for an onerous performance obligation. Do you agree with the costs specified? If not, what costs would you include or exclude and why?

No. The G100 believes that whether a contract is impaired or onerous should be assessed in the contract as a whole and not in respect of each performance obligation under the contracts. The G100 agrees that the incremental and allocated costs should be capitalized as contract costs.

The objective of the boards’ proposed disclosure requirements is to help users of financial statements understand the amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Do you think the proposed disclosure requirements will meet that objective? If not, why?

Whilst it is difficult to take objection to the proposed disclosures individually the detail and volume proposed is excessive and onerous. The G100 believes that the objective should be supported by specifying the disclosure principles to be applied by preparers.

Do you agree with that proposed disclosure requirement to disclose the amount of its remaining performance obligations and the expected timing of their satisfaction for contracts with an original duration expected to exceed one year. If not, what, if any, information do you think an entity should disclose about its remaining performance obligations?

No. The G100 agrees that if the disclosure is retained it should apply in aggregate to all contracts having an initial period in excess of one year.

Do you agree that an entity should disaggregate revenue into the categories that best depict how the amount, timing and uncertainty of revenue and cash flows are affected by economic factors? If not, why?

The G100 considers that whilst the proposed disclosures may provide useful information the proposals would result in detailed disclosures. However, we believe that rather than specifying detailed disclosures the Standard should state a principle that entities can best apply to their separate circumstances and activities.

Do you agree that an entity should apply the proposed requirements retrospectively (ie as if the entity had always applied the proposed requirements to all contracts in existence during any reporting periods presented)? If not, why?

Is there an alternative transition method that would preserve trend information about revenue but at a lower cost? If so, please explain the alternative and why you think it is better.

Yes, however the G100 believes that preparers be given at least two years after the issue of the Standard before it is effective. However, full retrospective application is likely to be onerous and costly for many entities, particularly those engaged in long-term construction contracts and as such an extended implementation period would be reasonable.

Do you think that the application guidance is sufficient to make the proposals operational? If not, what additional guidance do you suggest?

The guidance appears adequate. However, in a principles-based regime it is not clear why application guidance is seen to be necessary on as many key components as an integral part of the Standard. If the guidance is integral to the Standard and thus mandatory the guidance should be included in the relevant parts in the body of the Standard.

Do you agree with the proposed distinction between the types of product warranties? Do you agree with the proposed accounting for each type of product warranty? If not, how do you think an entity should account for product warranties and why?

Yes. The G100, from a conceptual perspective agrees that a distinction should be drawn between warranties for latent defects and extended warranties which are more in the nature of insurance contracts. However, t he G100 considers that there are likely to be difficulties in making such a distinction in practice and question whether too fine a distinction is being made in view of the significance of failed sales in practice.

Do you agree that the pattern of revenue recognition should depend on whether the licence is exclusive? Do you agree with the patterns of revenue recognition proposed by the boards? Why or why not?

No. The G100 agrees that revenue from granting a right, whether exclusive or non-exclusive, should be recognized over the term of the contract.

The boards propose that in accounting for the gain or loss on the sale of some non-financial assets (for example, intangible assets and property, plant and equipment), an entity should apply the recognition and measurement principles of the proposed revenue model. Do you agree? If not, why?

Yes.