Revenue Recognition New Standard: Key Areas and Examples was presented by Brandon A. Campbell Jr. on June 3, 2016. Brandon Campbell Jr. is a Director in PwC’s Transaction Services accounting advisory practice and regularly addresses various complex accounting matters with clients including revenue recognition, leasing and income tax accounting. Brandon’s most recent experience has been advising companies in regarding the application of the new leasing and revenue recognition standards under both IFRS & US GAAP. Since the issuance of the new leasing and revenue recognition standard, Brandon has been assisting clients with the implementation of the new Standards. Prior to Brandon’s time in Transaction Services, Brandon was in the audit practice of another international accounting firm. Brandon has over 10 years of accounting and auditing experience and has served clients ranging from early stage companies to large multinationals.
Brandon has been focusing on SEC engagements for his entire
professional career. His experience includes accounting advisory, debt
offerings, and quarterly and annual filings with the SEC.
Campbell began his presentation with a five step model of a comparison to existing guidance. He identified step number one as identifying the contracts with a customer. The focus areas of this step include
-may be written, verbal or implied by customary business practices
-Master supply agreements and separate purchase orders for individual orders
His analysis of identifying contracts include
-Some contracts include components that are in the scope of the revenue
standard and other components that are in the scope of other standards. An entity should first apply the separation or measurement guidance in other applicable
standards (if any) and then apply the guidance in the revenue standard.
- To account for a contract to provide leased equipment and product sales, an entity first
applies the separation and/or measurement guidance in the leasing standard to
separate and/or measure the contract price that relates to the equipment lease,
including the related executory costs and profits thereon.
- The guidance in the revenue standard is then applied to the sale of product component
of the contract.
Campbell identified step two as identifying the performance obligations in the contract. The focus areas of this step include
-Implied performance obligations
-Loyalty point programs
-Renewal options and upfront fees (material right)
-Minimum purchase orders- stand ready obligation
-Free goods and other marketing incentives
-Shipping and handling- risk of loss service
-Options to acquire additional goods and services
Warranties and other post -delivery obligations
The speaker identified step three of the comparison to existing guidance as determining the transaction price. The focus areas of step three include
-Time value of money
-Tiered pricing and volume discounts
-Rights of return
-Significant financing component -extended payment terms
-Profit Margin Guarantees
Campbell identified step four as allocating the transaction price to the performance obligations. He presented the key focus areas of this step which include
-Allocate based on relative standalone (actual or estimated) selling price
-No contingent revenue/cash cap
Campbell identified the final step as recognizing revenue when the entity satisfies a performance obligation. The key focus areas of step five include
-Determination of over time versus at a point in time
-Contract Manufacturing –no alternative use
-FOB synthetic Destination -shipping terms, change of control
Campbell continued the presentation with a discussion on the 3rd criteria of recognizing revenue which is no alternative use and right to payment. He discussed a deeper look into the 3rd criteria which includes
-The assessment of alternative use should be made at inception and not reassessed.
-The right to payment should include consideration of the contract terms and any legal precedent.
The speaker concluded the presentation with a discussion on implementation challenges by displaying data predicting the GAAP changes as a result of the new standards from 2016 to 2019.