UITF ABSTRACT 40: Revenue recognition and service contracts

UITF ABSTRACT 40: Revenue recognition and service contracts

Frequently asked questions

On 10 March the Urgent Issues Task Force (UITF) issued Abstract 40 ‘Revenue recognition and service contracts’. The Abstract provides guidance on the accounting for revenue (ie, turnover) arising from contracts to provide services, including services rendered by professional service firms. To view the UITF's press release, click here.

We comment further on the abstract in the April edition of TAXline which is now available to members on the Tax Faculty website. The Abstract explains that as a matter of principle there is no difference between the accounting required for long-term contracts and other contracts for services. The overriding consideration is whether the seller has performed, or partially performed, its contractual obligations. A principal conclusion of the Abstract is that where the substance of a contract is that the seller’s contractual obligations are performed gradually over time, revenue should be recognised as contract activity progresses to reflect the seller’s partial performance of its contractual obligations. In these circumstances it is inappropriate to defer recognition of revenue until contract completion.

In view of the importance to members of many of the issues dealt with in the Abstract, the Institute has prepared answers to Frequently Asked Questions to help members understand the implications of the new guidance. The FAQs also refer to other Institute help available to members in connection with this.

The Technical Enquiries Service is available to advise on practical aspects of the Abstract. For more details, click here.

The Tax Faculty will also be issuing further guidance shortly.