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‘Convergence’ Hits a Bump


A proposed accounting rule that will change how companies book revenue was delayed again Wednesday, as rule makers said more work is needed that will push the rule’s issuance into 2012.

The Financial Accounting Standards Board and International Accounting Standards Board said they will issue a revised proposal to overhaul the rules on revenue recognition, updating a proposal they first made last year. The revised proposal is planned for the third quarter, and companies, investors and other observers will have 120 days to comment on it after it is issued.

Revenue recognition is a crucial area of accounting that is often implicated in frauds, because it governs when and how companies can count revenue after making a sale. The accounting boards’ proposal would simplify and align the booking of revenue with the transfers of products and services that generate it, which don’t always happen at the same time under current rules. The proposal would eliminate special revenue-recognition models used in some industries, like software and construction.

The FASB received nearly 1,000 comment letters responding to its initial proposal. The boards have since made numerous changes to the plan’s details, though Prasadh Cadmabi, a FASB project manager, said the overall thrust remains the same.

The boards said it is necessary to introduce a revised proposal and seek further comment because calculating revenue is so important to all companies, and rule makers want to make sure they understand the impact of what they are proposing.

The revenue-recognition overhaul is a key part of the two accounting boards’ “convergence” attempt to bring U.S. and global accounting rules closer together. The Securities and Exchange Commission is slated to decide later this year whether U.S. companies should switch over to using international rules altogether.

The FASB and IASB initially wanted the new rule and other major convergence projects to be done by the end of this month. But in April, the boards pushed back that target to the end of 2011, and the latest move will delay the revenue-recognition rule further. Mr. Cadmabi said final issuance of the rule is now expected in 2012.

Write to Michael Rapoport at

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