BC16 During the early stages of their Revenue Recognition project, the boards considered various alternative revenue recognition models, including the following:

(a) the basis for recognising revenue - specifically, whether an entity should recognise revenue only when it transfers a promised good or service to a customer (a contract-based revenue recognition principle) or when (or as) the entity undertakes a productive activity (which could be an activity that is undertaken regardless of whether a contract exists); and

(b) the basis for measuring revenue - specifically, whether revenue should be measured at an allocated customer consideration amount (ie the transaction price) or at a current exit price.

Basis for recognising revenue

BC17 In the Discussion Paper, the boards proposed a principle to recognise revenue on the basis of the accounting for the asset or the liability arising from a contract with a customer. The boards had two reasons for developing a standard on revenue that applies only to contracts with customers. First, contracts to provide goods or services to customers are important economic phenomena and are crucial to most entities. Second, most previous revenue recognition requirements in IFRS and US GAAP focused on contracts with customers. The boards decided that focusing on the recognition and measurement of the asset or liability arising from a contract with a customer and the changes in that asset or liability over the life of the contract would bring discipline to the earnings process approach. Consequently, it would result in entities recognising revenue more consistently than they did under previous revenue recognition requirements.