ASC 606: New Standard for Revenure from Contracts with ......companies are to disclose qualitative...
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ASC 606: New Standard for Revenue from Contracts with Customers JOINT PROJECT BETWEEN FASB & IASB ASC 606 ELEMENTS ASU 2014-09 ASC 606 FASB IFRS 15 IASB SCOPE Applies to all Contracts with Customers that are not covered by other FASB topics (e.g. leases, insurances, some financial instruments) GOALS • Improved Consistency & Comparability across companies, industries, regions • Robust revenue accounting framework • Greater disclosure • Simplify prep of financial statements Termination Penalties Substantive? Y N Recognize Revenue Monthly Evidence for Stated Term Length of Contract CONTRACT MODIFICATIONS SEPARATE CONTRACT: Additional Goods & Services distinct from G&S in original contract Consideration for additional G&S reflects standalone selling price TERMINATE EXISTING CONTRACT, CREATE NEW: Remaining G&S distinct from those transferred before modification Allocate to the remaining G&S: Additional consideration from modification, plus original contract consideration not yet recognized MODIFICATION TO EXISTING CONTRACT: Additional Goods & Services not distinct from G&S in original contract CONTRACT PERFORMANCE OBLIGATIONS TRANSACTION PRICE RECOGNIZE REVENUE INCREMENTAL COSTS TO OBTAIN OR FULFILL A CONTRACT DISCLOSURE Performance Obligations: the distinct goods or services promised in a contract. • A good or service, or • A bundle of goods or services, or • A series of distinct goods or services Transaction price includes fixed and variable consideration, possible future reversals, financing effects, and more. Variable consideration can be discounts, rebates, refunds, penalties, incentives, etc. Revenue is recognized when a company satisfies a performance obligation to a customer. A performance obligation can be satisfied over time or at a point in time. If over time, progress toward completion must be measured so that the correct amount of revenue is recognized at the proper time. Retrospective Comparisons show differences in financials using ASC 606 compared with prior guidance. For ongoing periodic disclosure, companies are to disclose qualitative and quantitative information about: Contracts with customers Judgments made in applying ASC 606 guidance Assets recognized from costos to obtain or fulfill contracts Goods or services may not be distinct if accompanied by integration services. ASC 606 points to Subtopic 340-40 Recognize the incremental costs of obtaining a contract with a customer as an asset if those costs are expected to be recovered. Sales commissions are the prevalent cost that fits this definition Judgment & Interpretation required in many situations. Joint Transition Resource Group (TRG) provided comments on some issues. Contract Modifications Commission not tied to single contract Threshold-based Commissions Bonuses CONTRACT PERIOD EXPECTED PERIOD OF BENEFIT Capitalized contract costs are amortized over the “expected period of benefit”, which may be the contract term or may be longer. 877-ICONIXX | [email protected] | www.iconixx.com 3420 Executive Center Drive, Suite 250, Austin, Texas 78731 NAVIGATING SALES COMPENSATION ACCOUNTING UNDER ASC 606 • For each Contract: Timely, Accurate Compensation Calculations that are Reportable & Auditable • If calculations or rates change over time (e.g. accelerators), calculations must be accurately maintained • Reporting must provide auditable data for disclosure tables, impairment testing, amortization schedules • Flexibility required as interpretations and guidance continue to evolve
Transcript of ASC 606: New Standard for Revenure from Contracts with ......companies are to disclose qualitative...
ASC 606: New Standard for Revenue from Contracts with Customers
JOINT PROJECT BETWEEN FASB & IASB
ASC 606 ELEMENTS
ASU 2014-09ASC 606
FASB
IFRS 15IASB
SCOPE
Applies to all Contracts with Customers that are not covered by other FASB topics (e.g. leases, insurances, some financial instruments)
GOALS
• Improved Consistency & Comparabilityacross companies, industries, regions
• Robust revenue accounting framework• Greater disclosure• Simplify prep of financial statements
TerminationPenalties
Substantive?
Y
N
RecognizeRevenueMonthly
Evidence for Stated Term Length of Contract
CONTRACT MODIFICATIONSSEPARATE CONTRACT:
Additional Goods & Services distinct from G&S in original contractConsideration for additional G&S reflects standalone selling price
TERMINATE EXISTING CONTRACT, CREATE NEW:Remaining G&S distinct from those transferred before modificationAllocate to the remaining G&S: Additional consideration from modification, plus original contract consideration not yet recognized
MODIFICATION TO EXISTING CONTRACT:Additional Goods & Services not distinct from G&S in originalcontract
CONTRACT
PERFORMANCEOBLIGATIONS
TRANSACTIONPRICE
RECOGNIZEREVENUE
INCREMENTAL COSTSTO OBTAIN OR
FULFILL A CONTRACTDISCLOSURE
Performance Obligations: the distinct goods or services promised in a contract.• A good or service, or• A bundle of goods or services, or• A series of distinct goods or services
Transaction price includes fixed and variable consideration, possible future reversals, financing effects, and more.Variable consideration can be discounts, rebates, refunds, penalties, incentives, etc.
Revenue is recognized when a company satisfies a performance obligation to a customer. A performance obligation can be satisfied over time or at a point in time. If over time, progress toward completion must be measured so that the correct amount of revenue is recognized at the proper time.
Retrospective Comparisons show differences in financials using ASC 606 compared with prior guidance.
For ongoing periodic disclosure, companies are to disclose qualitative and quantitative information about:
Contracts with customers
Judgments made in applying ASC 606 guidance
Assets recognized from costos to obtain or fulfill contracts
Goods or services may not be distinct�if accompanied by integration services.
ASC 606 points to Subtopic 340-40
Recognize the incremental costs of obtaining a contract with a customer as an asset if those costs are expected to be recovered.
Sales commissions are the prevalent cost that fits this definition
Judgment & Interpretation required in many situations.�Joint
Transition Resource Group (TRG) provided comments on some
issues.
ContractModifications
Commission not tied to single
contract
Threshold-based Commissions Bonuses
CONTRACT PERIOD
EXPECTED PERIOD OF BENEFIT
Capitalized contract costs are amortized over
the “expected period of benefit”, which may
be the contract term or may be longer.
877-ICONIXX | [email protected] | www.iconixx.com3420 Executive Center Drive, Suite 250, Austin, Texas 78731
NAVIGATING SALES COMPENSATION ACCOUNTING UNDER ASC 606
• For each Contract: Timely, Accurate CompensationCalculations that are Reportable & Auditable
• If calculations or rates change over time (e.g. accelerators),calculations must be accurately maintained
• Reporting must provide auditable data for disclosuretables, impairment testing, amortization schedules
• Flexibility required as interpretations and guidancecontinue to evolve
