In the past few years, much has been made of the plans to merge the accounting standards used in the US with those used by much of the rest of the developed world. In 2002, the US standards setter and the international standards bodies agreed to a framework for convergence of US generally accepted accounting principles (US GAAP) with the International Financial Reporting System (IFRS) in a document known as the Norwalk Agreement.1 Since then, the US and international bodies (known, respectively, as the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, or IASB) have worked to align their respective standards so that, eventually, developed nations will have a homogenous accounting system. One particular point of difficulty in this effort, however, has been the issue of fair value accounting. The economic recession that began in 2007 further complicated convergence efforts as attention was drawn away from reconciliation efforts and focused on both placing blame and reforming the practices that caused the crisis. Then, with the election of President Barack Obama, the entire convergence movement was threatened when the newly-appointed chairwoman of the Securities and Exchange Commission announced that she would not “feel bound”2 by the convergence roadmap established by her predecessor.
When the Financial Accounting Standards Board (FASB) voted at its September 24 meeting to adopt a rule change recommended by its Emerging Issues Task Force (EITF), very little changed. Nonetheless, the adoption of EITF 08-1 has won praise from many technology and service companies. The change involves recognizing the revenue, or sales price, of items that involve multiple parts or whose sales contract covers multiple years. Examples include a piece of hardware whose accompanying software license spans multiple years or a two-year contract to provide consulting services. Typically, because a portion of the sales price relates to more than one year (accounting or reporting period), the sale must be recognized proportionally over the life of the agreement, rather than recording the full sales price in the year the agreement is signed.