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What is the Emerging Issues Task Force?

Emerging Issues Task Force

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Emerging Issues Task Force

The Emerging Issues Task Force (EITF) is a group formed by the Financial Accounting Standards Board (FASB) in the United States. Established in 1984, the EITF’s purpose is to provide assistance to the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues within the framework of existing Generally Accepted Accounting Principles (GAAP).

The EITF comprises representatives from a variety of constituent groups that include public accounting firms, preparers of financial statements, and users of financial statements. They meet several times a year to discuss emerging accounting issues not yet addressed by current accounting standards and to seek consensus on how to resolve these issues.

Once the EITF reaches a consensus on an issue, it is forwarded to the FASB for ratification. If ratified, the EITF’s resolution is included in the Accounting Standards Codification and becomes part of GAAP. While the FASB retains the ultimate decision-making power, the EITF plays an essential role in shaping U.S. accounting standards.

The EITF helps reduce diversity in practice by resolving narrowly-defined financial reporting issues within the scope of existing principles. This helps in ensuring consistency and comparability in financial reporting, which are crucial for the users of financial statements, such as investors and creditors.

Example of the Emerging Issues Task Force

An example of the Emerging Issues Task Force’s work can be found in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” This issue was addressed because there was diversity in practice about how to account for contractual arrangements that involved multiple products or services.

For instance, imagine a technology company sells a bundle that includes a computer, a printer, and a maintenance service contract. The question is, how should the company recognize revenue for this arrangement? Should it recognize all the revenue when the products are sold, even though the service contract will be fulfilled over time? Or should it allocate a portion of the revenue to each component and recognize it when each component is delivered?

The EITF reached a consensus that the revenue should be divided into separate units of accounting if the products or services in the arrangement have value on a standalone basis. The revenue allocated to each unit should then be recognized when the unit is delivered or the service is performed.

This consensus was ratified by the FASB and became part of U.S. GAAP, reducing diversity in practice and providing clearer guidance for companies dealing with these types of arrangements.

Please note that subsequent to EITF 00-21, the FASB issued ASC 606, Revenue from Contracts with Customers, which superseded most of the previous revenue recognition guidance, including EITF 00-21. ASC 606 provides a comprehensive revenue recognition model for all contracts with customers and continues to follow the principle of recognizing revenue as each performance obligation (similar to the concept of units in EITF 00-21) is satisfied.

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