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Transcript of Revenue Recognition Update - Pulp - 3pm - Revenue...  ASU 2010-17, Milestone Method of Revenue...

  • Revenue Recognition Update

    Lisa L. Acosta, Partner

    May 26, 2011

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    Agenda

    Recently Issued Accounting Standards Updates (ASUs) and Related Guidance

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) ASU 2009-14, Certain Revenue Arrangements That Include Software Elements (EITF

    09-3)

    ASU 2010-17, Milestone Method of Revenue Recognition (EITF 08-9)

    Ongoing Standard-Setting Activities

    Joint FASB / IASB Standards Projects

    Revenue Recognition

    1

  • ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1)

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1)

    Question considered by the Task Force:

    Fair value threshold under ASC 605-25 (EITF 00-21)

    Current guidance requires vendor specific objective evidence (VSOE) or third party evidence (TPE) to achieve separation and many companies have difficulty achieving this threshold

    Absence of VSOE or TPE most common reason for inability to separate under ASC 605-25

    Scoping Questions

    Limited to scope of ASC 605-25

    ASU 2009-14 (EITF 09-3) addresses the applicability of EITF 08-1 to certain arrangements within ASC 985-605 (SOP 97-2)

    3

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) (continued)

    Final Consensus:

    Fair value threshold within ASC 605-25 modified to require best estimate of selling price when VSOE or TPE is not available

    Will result in separation in more circumstances

    References to fair value replaced with selling price

    Examples modified with estimated selling price considerations

    Requires the relative selling price method of allocation

    Eliminates use of residual method

    Requires vendors to use a hierarchy of evidence of selling price (VSOE if available, then TPE if available, then estimated selling price (ESP))

    Requires that companies determine VSOE, TPE or ESP for ALL deliverables

    4

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) (continued)

    Example:

    Product X does not have VSOE or TPE; ESP is $50

    Service Y has VSOE of $40

    Total arrangement consideration is $75

    At period end Product X is delivered and Service Y is undelivered

    Residual method revenue = $35 (75 40)

    This method is no longer permitted for arrangements within the scope of ASC 605-25

    Relative selling price method = $42 [(50/90)*75]

    This method is required for arrangements within the scope of ASC 605-25

    5

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) (continued)

    Disclosures

    Ongoing disclosure objective

    Provide qualitative and quantitative info about significant judgments made in application of ASU 2009-13

    Changes in either judgments or application that may significantly affect timing or amount of revenue

    Summary of ongoing disclosure requirements

    Nature of multiple-element arrangements and significant deliverables

    General timing of revenue for deliverables and units of accounting

    Performance, cancellation, termination and refund provisions

    Significant factors, inputs, assumptions and methods used to determine selling price

    Whether significant deliverables are separate units of accounting and, if not, why not

    Effects of changes to selling price or method or assumptions used that significantly impact allocation of arrangement consideration

    6

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) (continued)

    Transition Disclosures

    Qualitative description of change

    Supplement with quantitative disclosure to allow users to understand the impact of adoption and assess trends

    Companies to determine the appropriate quantitative disclosure to meet this objective which could include:

    Amount of revenue recognized subject to ASU 2009-13 and amount that would have been recognized if transactions subject to the previous guidance

    Retrospective disclosures for one year prior to adoption

    Revenue recognized and the amount of deferred revenue for those arrangements still under the previous guidance as well as those arrangements under ASU 2009-13

    7

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-13, Multiple-Deliverable Revenue Arrangements (EITF 08-1) (continued)

    Effective Date

    Prospective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010

    Option for retrospective application if meet conditions in Statement 154 (ASC 250-10) for retrospective application

    Earlier application is permitted as of the beginning of fiscal year but can be applied in a period other than the first period of a fiscal year by retrospective application to beginning of year

    8

  • ASU 2009-14, Certain Revenue Arrangements That Include Software Elements (EITF 09-3)

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-14, Certain Revenue Arrangements That Include Software Elements(EITF 09-3)

    Modifies scope of ASC 985-605 (SOP 97-2) to exclude tangible products containing both software and non-software components that function together to deliver the product's essential functionality

    All tangible components now scoped out

    EITF 03-5 eliminated for tangible products, but concepts retained to determine if service deliverables are considered software deliverables

    Software still scoped out if it is incidental to the products or services in the arrangement as a whole

    ASC 605-25, as amended by ASU 2009-13 (EITF 08-1), applies to arrangements that are scoped out of ASC 985-605

    10

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

    ASU 2009-14, Certain Revenue Arrangements That Include Software Elements(EITF 09-3) (continued)

    Rebuttable presumption that software elements are considered essential to functionality of the tangible product if sales of the tangible product without the software elements are infrequent

    Exceptions should be isolated

    A pattern of regular sales by the vendor of the hardware without the software element would indicate that the software is not essential to the functionality of the hardware

    The following transactions do not taint this assessment

    Standalone sales of replacement hardware

    Standalone sales of the software

    11

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name,