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