Management Accounting News Flash

Presents:

Revenue Recognition Rewind

What You Might Have Missed
Anne-Lise Vivier
Pilar Garcia
Kara Peterson
April 12, 2016

Sponsored by

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Moderator

Steve Shannon
Director
Partnership Marketing

IMA

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Featured Presenter

Anne-Lise Vivier, CPA

Accounting Publications Managing Editor

Thomson Reuters

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Featured Presenter

Pilar Garcia, CPA

Managing Editor of
Checkpoint Catalyst: US GAAP

Thomson Reuters

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Featured Presenter

Kara Peterson, CPA

Technical Accounting Editor of
Checkpoint Catalyst: US GAAP

Thomson Reuters

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Learning Objectives
Upon completing this webinar, you will be able to:
1. Summarize the new five-step model for revenue
recognition introduced by ASU No. 2014-09.
2. Explain the issues the standard setters are still
discussing, and how they relate to the new five-step
revenue recognition model.
3. Understand where these issues stand in the standard
setting process.
4. Describe the key players and how the Joint Transition
Resource Group works.
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Agenda
Basic Model

Transition Resource Group (TRG)

Amendments to the Basic Model
Whats Next

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Basic Model
Step 1Identify customer contracts
Step 2Identify performance obligations
Step 3Calculate the transaction price
Step 4Allocate the transaction price
Step 5Recognize revenue

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Polling Question 1
Is your company:
a) A public company reporting under US GAAP
b) A public company reporting under both US GAAP and
IFRS
c) A private company
d) A not-for-profit entity
e) Other

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TRG - Purpose
To collect and discuss questions from
stakeholders
To notify the Boards of implementation
issues
To help stakeholders understand the new
guidance

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TRG - Meetings
Members

Questions
TRG papers

Meeting dates
Most recent November 9, 2015
Next April 18, 2016

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Polling Question 1 Results (Placeholder)

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Amendments to the Basic Model

Effective date

Performance obligations

Licenses

Principal versus agent

Transaction price
Breakage
Adopting the Guidance

Collectibility
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Amendments to the Basic Model

Effective
date

One-year deferral

Public entities:

December
31, 2018

March 31, June 30, September

2018
2018
30, 2018

Nonpublic entities:

December
31, 2019
March 31,
2020

June 30, September

30, 2020
2020

Early adoption
ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date
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Amendments to the Basic Model

Immaterial items

An entity does not have to consider immaterial goods and services

Goods and services that can be separately identified

Performance
obligations

An entity considers if the nature of its promise is either to transfer

each separate good or service or to transfer a combined item

Shipping and handling

The accounting for these activities depends on if they occur before

or after the customer obtains control of the good:

If beforenot a separate performance obligation

If afteraccounting policy election is available
Proposed ASU No. 2015-250, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing
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Performance Obligations
Shipping - Example 1:
Shipping

Control transfers

Accounting: The shipping is not a separate performance obligation. The

shipping is part of the promise to provide the good.

Shipping - Example 2:
Control transfers

Shipping

Accounting: The entity can make an accounting policy election to treat the
shipping as part of the promise to provide the good. Otherwise, the entity must
perform an evaluation to determine if the shipping is a separate performance
obligation.
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Polling Question 2
Where do you stand in the implementation of the new
revenue recognition model?
a)
b)

c)
d)
e)

We have not started and know very little about the standard.
We have read the standard and/or listened to webcasts and know
what it is about, but we have not yet started implementing it.
We have made a preliminary assessment of the efforts required
and of the possible effect on our financial statements.
We are well under way and confident that we will be ready on
time.
We are ready!

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Amendments to the Basic Model

Sales (and similar) taxes

Date of entering into the contract

Constraint on variable consideration

Accounting policy electionexclude sales (and similar) taxes from the

transaction price

Measurement date for noncash consideration

Transaction
price

Only applies to variability related to factors other than the form of the
consideration

MILE

2
6

Consideration recorded as a liability

Can recognize revenue if all of the following are true:

The liability represents consideration for goods and services already provided
to the customer
The entity has stopped providing goods and services to the customer
The entity has no further obligation to the customer
The consideration is nonrefundable

Proposed ASU No. 2015-320, Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients
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Polling Question 2 Results (Placeholder)

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Amendments to the Basic Model

Collectibility

Excerpt from 606-10-25-1:

Original

It is probable that the entity will collect the

consideration to which it will be entitled in exchange
for the goods or services that will be transferred to the
customer

Revised

It is probable that the entity will collect substantially

all of the consideration to which it will be entitled in
exchange for the goods or services that will be
transferred to the customer

What if my customer has bad credit?

Consider if the entity has protection against the credit risk

(see FASB ASC 606-10-55-3A through 55-3C
Proposed ASU No. 2015-320, Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients
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Amendments to the Basic Model

Two types of intellectual property:

Functional recognize revenue at a point in time

Symbolic recognize revenue over time

Sales-based and usage-based royalties

Licenses

Guidance applies when the predominant item is a license

Restrictions

Examples time, geography, usage

Do not affect how an entity identifies the goods and services in
the contract
Proposed ASU No. 2015-250, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing
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Licenses

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Polling Question 3
How closely have you followed the TRG meetings?
a) Very closely: We have listened to the integrality of the
meetings and have a good understanding of all the issues
discussed.
b) Somewhat closely: We have read articles and other
publications issued after each meeting.
c) Not very closely: We know that the TRG is meeting
regularly, but have not paid much attention to the
discussions. We will get to it when we have to.
d) Not at all: We were not aware of the TRG before today.

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Amendments to the Basic Model

Principal
versus agent

ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
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Polling Question 3 Results (Placeholder)

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Amendments to the Basic Model

EITF issue affecting Subtopic 405-20

Prepaid stored-value cards:

Breakage

Under existing guidance diversity in practice on how

to derecognize the liability
Under the ASU the liability is a financial liability but
an entity follows rules consistent with Topic 606 to
determine how to derecognize the liability

ASU No. 2016-04, LiabilitiesExtinguishments of Liabilities (Subtopic 405-20): Recognition of

Breakage for Certain Prepaid Stored-Value Cards

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Amendments to the Basic Model

Contracts with modifications

Practical expedient measure and allocate the transaction

price for the contract as of the start of the earliest period
presented under the revenue guidance

Full retrospective approach

Do not have to disclose the effect of the accounting change

on affected financial statement line items in the period of
adoption

Modified retrospective approach

Use the modified retrospective approach for either:

Adopting the
Guidance

Contracts that are not completed at the date of initial application; or

All contracts at the date of initial application

Definition of a completed contract

Proposed ASU No. 2015-320, Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients
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Adopting the Guidance

Completed contract - example:
Which one do you think is the completed contract?

A contract for which an entity has transferred the

goods and services before the date of initial
application

A contract for which an entity has recognized

substantially all of the revenue before the date
of initial application

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Polling Question 4
Which issue do you think will be the most challenging
for you?
a)
b)
c)
d)

Collectibility of purchase price

Licensing
Principal vs. agent considerations
Other

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Other Discussions of the TRG

Option to purchase additional goods and services
versus variable consideration

Example stand ready obligation

Judgment is required
Memo 48, Customer Options for Additional Goods and
Services, provides a helpful framework

Termination rights and penalties

Is the penalty substantive?

If so, the period over which the penalty applies generally is

the contract period
If not, the option to terminate may be more like an option to
renew
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Polling Question 4 Results (Placeholder)

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Whats Next?

Implementation

Changes to the TRG

Upcoming Standards

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Additional Resources
Transition Resource Group - Information on the FASBs
website (http://www.fasb.org)

Select Standards and then Revenue Recognition Transition

Resource Group

Checkpoint Catalyst: US GAAP Revenue Recognition

Available on Thomson Reuters Checkpoint

(https://tax.thomsonreuters.com/Checkpoint-Catalyst-US-GAAP)

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Additional Resources
Amendment

Standard

Effective date

ASU No. 2015-14

Performance obligations

Proposed ASU No. 2015-250

Transaction price

Proposed ASU No. 2015-320

Collectibility

Proposed ASU No. 2015-320

Licenses

Proposed ASU No. 2015-250

Principal versus agent

ASU No. 2016-08

Breakage

ASU No. 2016-04

Adopting the Guidance

Proposed ASU No. 2015-320

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Questions & Answers

Use the Q & A Panel to send your questions to our panelists.

Anne-Lise Vivier, CPA

Accounting Publications
Managing Editor
Thomson Reuters

Pilar Garcia, CPA

Managing Editor of
Checkpoint Catalyst:
US GAAP
Thomson Reuters

Kara Peterson, CPA

Technical Accounting
Editor of Checkpoint
Catalyst: US GAAP
Thomson Reuters

Steve Shannon
Director of Partnership
Marketing
IMA

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Thank You to Our Presenters!

Pilar Garcia, CPA

Anne-Lise Vivier, CPA

Kara Peterson, CPA

Managing Editor of Catalyst:

US GAAP
Thomson Reuters

Accounting Publications
Managing Editor
Thomson Reuters

Technical Accounting Editor

of Catalyst: US GAAP
Thomson Reuters

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