ASC 606 Overview: New Revenue Recognition Rules 2016
You can see all upcoming CPE training events – including other revenue recognition conferences: Upcoming Events
This Revenue Recognition Overview was presented by Shauna Watson on June 2, 2016 in Philadelphia, PA.
Shauna Watson is the Global Managing Director of Finance & Accounting at RGP.
The speaker discusses the effects of the new Revenue Recognition Standards such as
-It eliminates all industry-specific guidance,replacing it with one Standard,
– specific accounting may have the most difficulty with implementation
– All companies that enter into contracts with customers to transfer goods, services or Nonfinancial Assets.
Watson presented key provisions such as
-The Objective is to converge standards and provide a single, high
quality standard to recognize revenue consistently across entities and jurisdictions
-It Replaces existing revenue guidance in US GAAP and IFRS
-If the criteria are not met, the contract is not accounted for using the five step method in the new standard and any consideration received from the customer is generally recognized as a liability
The speaker continued to speak on collectability which refers to a customer’s intent and ability to pay the amount of promised consideration when it is due. She argued the criteria of cash basis collectability.
For consideration received prior to existence of a contract (i.e. meeting all Step 1 criteria), recognize as a liability until:
- The contract been terminated and the consideration received is nonrefundable.
- b) There is no remaining performance obligations and all, or substantially all, of the consideration been received and is nonrefundable.
- c) The entity has transferred control of the goods or services and stopped transferring additional good or services (with no obligation to transfer additional goods or services), AND the consideration received is nonrefundable.
Watson spoke about identifying separate performance obligations in contracts which includes a good or service’s benefit on its own and a good or service’s readily availability, customer options for additional goods and services, and warranties.
She also discussed allocating transaction prices to separate performance obligations such as estimating standalone selling prices by considering the expected cost plus a margin approach.
Watson closed her presentation with a discussion on recognizing revenue as performance obligations are satisfied. This includes
-Recognizing revenue overtime has an objective to select an appropriate method to measure progress toward completion of the performance obligation in a manner that best depicts the transfer of goods or services to the customer.
– Recognizing revenue at a certain point in time allows the customer to have an unconditional or present obligation to pay, have a legal title, and have the physical possession.
2016 ASC 606 Training Conference: Revenue From Contracts With Customers
Executive summary from Rich Stuart from RSM – Partner National Professional Standard Group
Presentation given at December 2015 Financial Accounting & Reporting Update
Link to upcoming 2016 events including Revenue Recognition Conferences: 2016 List of Events
In the executive summary, Rich covered the background, effective date and transition points. He followed with a detailed description of the five steps, other pending guidance and changes and related disclosure issues.
Entities can choose to apply one of two transition methods:
-Full retrospective application of the guidance (pros: provides for best comparability cons: more time consuming particularly when one or comp periods are presented or there is a large number of multiyear contracts)
-Modified retrospective application as of the date of initial application of the new guidance (pros: less time consuming cons: require you to disclose revenue info based on what revenue would have been in year of adoption under legacy rev rec guidance)
Rich explained that there is quite a bit of complexity baked into these steps depending on your particular facts and circumstances.
- Contracts must be enforceable – can also be oral or implied, evaluate collectibility
- Identify all the promises to provide/transfer goods or services in the agreement – consider implicit arrangements here too like upgrades
- In determining the contract price, considerations include price concessions, discounts, rebates, incentives, bonuses, penalties etc. as well as variable consideration
- In allocating the transaction price, you are required to use a relative stand-alone selling price allocation model
- In recognizing revenue, you wait until the customer obtains control over the good or service, consider licenses?
Other pending changes include gross vs net presentation of sales tax collected from customers, principals vs, agent and various issue by the Transition Resource Group (TRG).
Link to upcoming 2016 events including Revenue Recognition Conferences: 2016 List of Events