The New England Accounting Advisor

The economic impact from the novel coronavirus has been a significant challenge for most companies, whether due to changes in customer demand, shuttering of operations or constraints on labor and supply chain. Considering these ramifications, companies may be more inclined in the COVID-19 pandemic environment to implement pricing changes in order to improve customer retention. Such steps may include incremental discounting in the form of marketing offers, broad ranging price concessions, or specific customer contract modifications. The revenue recognition implications from these actions can be complex; we will delve into each to highlight the nuances and accounting considerations of each.

Topics: Revenue Recognition Standard, Revenue recognition, COVID19, Coronavirus, Coronavirus Aid, Relief, and Economic Security Act

What a long, strange trip it’s been from the release of the new revenue recognition standard to the adoption year for private companies. The Financial Accounting Standards Board (FASB) released its initial changes to accounting for revenue from contracts five years ago under ASC Topic 606, Revenue from Contracts with Customers. In the intervening years, changes have been made, effective dates delayed, and public companies adopted the standard.

Topics: Revenue Recognition Standard, Revenue recognition, ASC Topic 606

Public business entities will be among the first adopters of the revenue recognition standard and must implement the changes at the beginning of the 2018 calendar year. In anticipation of the first financial statement audits that include the new revenue recognition standard, the PCAOB released Staff Audit Practice Alert No. 15: Matters Related to Auditing Revenue from Contracts with Customers. It highlights six provisions of the new revenue recognition standard that pose the greatest risk for audit deficiencies. Although the PCAOB directs the staff alert at auditors of the public sector, the audit risks will be similar for private business entities as well.

Topics: Revenue Recognition Standard, Revenue recognition, ASC Topic 606, ASC 606

Revenue recognition under ASC Topic 606 includes new and extensive disclosure requirements that will significantly impact revenue-generating companies, whether publicly traded or privately held.

Topics: Revenue Recognition Standard, Revenue recognition, ASC Topic 606

New revenue recognition standards for U.S. and international financial reporting will require careful planning and education to develop an implementation strategy. In addition, the standard affecting U.S. generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) may bring about substantial income tax consequences. Historically, many entities found that the financial reporting standards and tax rules regarding revenue recognition ran parallel and produced identical results; under the new standard this may no longer hold true.

Topics: accounting, tax, Revenue Recognition Standard, Revenue recognition

Topic 606 introduces a 5-step process for the recognition of revenue that applies to all entities that have contracts with customers within its scope. Entities that license intellectual property (licenses) through contracts with customers also apply the 5 steps but have some special considerations that are applicable to the unique nature of licenses.

Topics: Revenue Recognition Standard, Revenue recognition, Licensing Arrangements

Once entities allocate the transaction price, they can then move to the fifth and final step of the new revenue recognition standard: recognizing revenue. Step 5 requires entities to recognize the consideration given for an asset when or as the performance obligation has been satisfied. This point occurs when the customer receives control of the good or service.

Topics: Revenue Recognition Standard, Revenue recognition, Performance obligations

Six elements the Joint Transition Resource Group for Revenue Recognition earmarked for change became part of the final standard recently. Accounting Standards Update (ASU) 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, updates guidance related to collectibility, presentation of sales and use taxes, noncash consideration, contract modifications and completed contracts at transition.

The bulk of the changes remain the same as outlined in the exposure draft released last fall. The ASU also includes a technical correction.

Topics: Revenue Recognition Standard, Revenue recognition, Transaction Price

Step 4 of the new five-step revenue recognition standard requires the allocation of the transaction price to each performance obligation in a contract with a customer. Entities reach this point by first identifying the contract with a customer, identifying the performance obligations in the contract and determining the transaction price.

Topics: Revenue Recognition Standard, Revenue recognition, Transaction Price

Comment period extended until end of June
 
The Financial Accounting Standards Board (FASB) proposed amending ASU 2014-09 Revenue from Contracts with Customers (Topic 606) to clarify two key issues: how to properly identify performance obligations and account for licenses for intellectual property in the new standard.
 
The new standard requires entities use a five-step revenue recognition approach:

Topics: Revenue Recognition Standard, FASB, Revenue recognition, Financial Accounting Standards Board, ASC 606