Revenue Recognition - to apply the core principle: ... Topic 920-605, Broadcasters...

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  • 1

    Revenue Recognition

    Media Finance Focus 2016

    Denver, Colorado

  • Panelists


    Dwight Delapenha, Deladad Advisory

    Dan Drobac, PwC

    Sue Tuxill, Salem Media Group

    Mike Ruggiero, ATV Broadcast

  • Overview of New Revenue Standard

    Recent FASB Amendments

    Media Company Examples

    Disclosure Requirements

    Revenue RecognitionAgenda


  • 4

    Effective Date

    Public entities 2018 (annual and interim periods)

    Nonpublic entities 2019 (annual periods); 2020 (interim


    Earlier adoption as of original effective date (2017) permitted

    Effective date is deferred for all entities by one year.

    The effective dates for Topic 606 and IFRS 15 for public

    entities are aligned.

  • Transition MethodsPY2



    (2018)CY Footnotes









    Rev rec under new standard


    RetrospectiveRev rec

    under legacy



    catch-up Rev Rec






    standard for

    CY (2018)


  • Overview of Revenue Recognition Model


    1. Identify

    the contract(s)

    with the


    2. Identify




    3. Determine




    5. Recognize

    revenue when

    (or as) a


    obligation is


    4. Allocate

    the transaction


    Recognize revenue to depict the transfer of promised goods or services to customers in an

    amount that reflects the consideration to which the entity expects to be entitled in

    exchange for those goods or services

    Unit of Account

    Distinct Criteria



    Significant financing




    payable to customer

    Criteria for

    identifying a contract



    Relative standalone

    selling price

    Discounts and

    contingent amounts

    Over time criteria

    Point in time indicators

    Steps to apply the core principle:

    Core Principle:

  • Clarifications to Issued Standard


    Input from Transition Resource Group led to projects to address

    implementation challenges:

    Principal versus Agent Considerations (March 2016)

    Identifying Performance Obligations and Licensing (April 2016)

    Narrow-Scope Improvements and Practical Expedients (May


    Technical Corrections and Improvements (Exposure Draft)

    Amendments aimed to clarify Boards intent and reduce cost

    and complexity of implementing the new guidance

  • 8

    Identifying the Contract 1 2 3 54

    Role of collectibility in the revenue guidance has changed:

    Current GAAP Recognition constraint

    Topic 606 Collection must be probable for a contract to exist

    Objective of collectibility assessment is to determine whether there is

    a substantive transaction

    Consider ability to mitigate exposure to credit risk (e.g. ability to

    cease providing goods or services upon nonpayment)

    Clarify alternate revenue recognition criteria (which is applied when

    unable to meet Step 1)

    Introduces ability to recognize revenue prior to contract



  • Identifying Performance Obligations


    No need to assess immaterial promised goods or services

    Shipping and handling practical expedient

    Reduce cost and complexity

    Rearticulate separately identifiable principle

    Is nature of promise to transfer each good or service or combined item?


    Distinct Promises = Performance Obligations = Unit of Account

    Current GAAP standalone value

    Topic 606 two distinct criteria (1) capable of being distinct (2)

    separately identifiable

    1 2 3 54

  • Example: Multiple Performance Obligations


    Media entity A enters an agreement with Programmer P under which

    Programmer P is provided a one-hour daypart on Saturdays from 1 pm

    to 2 pm to feature their program. The program will run for 26 weeks

    starting January 1, 2016.

    To promote the one-hour program, Programmer P will receive 15 spots

    per week for a total of 26 weeks starting December 1, 2015 and 15

    banner advertisements per week on the station website beginning

    December 1, 2015 for 26 weeks.

    The 15 spots per week and 15 banner ads per week will air between the

    hours of 6am and 8pm as determined by the station traffic manager.

    The programmer may receive up to 100 bonus spots at the discretion of

    the station. The programmer agrees to a cost of $1,000 per week for

    the package.

  • Example: Multiple Performance Obligations


    Estimated Stand Alone

    Selling Prices

    Current market rate for 1 hour programming on Sat is $500 $ 13,000

    :30 on air spots 6-8am and 4-6pm run $35

    All other times $20, therefore blended rate $25 $ 9,750

    Banners run $10 per :30 $ 3,900

    Bonus spots MAY be provided, no obligation to do so/no

    refund to programmer $ -

    $ 26,650


    Programming Air-Time $ 12,683

    Promotional Spots On-Air $ 9,512

    Promotional Banner Ads on station website $ 3,805

    Up to 100 bonus spots $ -

    $ 26,000

  • 12


    Current GAAP includes limited, industry-specific guidance on revenue recognition for licenses.

    New guidance includes a comprehensive model to be applied to all industries.



    Sales- or Usage-

    Based Royalties

    Nature of License: Functional or Symbolic

    Clarify that there is a

    distinction between contractual

    provisions that:

    Require transfer of control

    of additional goods or

    services to a customer

    (multiple performance


    Define attributes of a

    single promised license

    Clarify scope and applicability

    of exception to variable

    consideration constraint


    Applies when royalty

    completely or

    predominantly relates to


    Royalties should not be

    split into portions to which

    exception does and does

    not apply

    Improve operability of right to

    use vs. right to access


    Based on significant

    standalone functionality

    Functional: point in time


    Symbolic: over time


    1 2 3 54

  • 13

    Licensing Example 1

    Media Company licenses 4 seasons of a television program to

    an over the top distributor. Media Company will also add

    season 5, which is currently in production, as each episode is

    available. The contract price is $5 million.

    How should Media Company account for this license?

    What if the consideration were based on the number of

    subscribers to the over the top distributors service?

  • 14

    Licensing Example 2

    Media Entity A enters a licensing agreement with Broadcaster B under

    which Broadcaster will have the right to broadcast 2 programs

    produced and distributed by Media Entity A over a 12 month period.

    The total amount due to Media Entity A under the agreement is

    $100,000 due in quarterly installments of $25,000.

    The programs include:

    1. 26 weekly news programs - one hour in length delivered via

    satellite as produced

    2. 10 two hour special feature programs to be selected from Media

    Entity As current available inventory

  • 15

    Principal vs. Agent Considerations 1 2 3 54

    Current GAAP based on risk and rewards notion

    New guidance is based on overarching principle of controlindicators no longer

    weighted in guidance

    Unit of account: each specified good or service

    Control of a service


    Do not override control assessment

    Relative importance based on facts and circumstances

    Reframed to indicate when an entity is a principal (vs. an agent)

    Credit risk was removed as an indicator


    Principal (gross revenue) provides specified good or service

    Agent (net revenue) arranges for specified good or service to be provided

  • Copyright 2014 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational /academic purposes only.

    Media Company B owns and operates a website. Media Company B enters an exclusive

    agreement under which Entity C will sell all web-based advertisements on Media

    Company B's website.

    Entity C guarantees minimum annual revenue of $100,000. If Entity C does not meet

    minimum revenue of $100,000, it will pay Media Company B an amount equal to 70% of

    the difference between the minimum gross revenue and the actual gross revenue.

    Entity C is responsible for all creative services with the advertiser and is responsible for

    servicing, maintenance, display and reporting to the advertiser. Entity C is responsible for

    all billing, invoicing and collections. Entity C will remit all payments to Media Comp