13.1 Introduction

Under U.S. GAAP, the revenue standard’s cost guidance is codified in ASC 340-40 (i.e., separately from ASC 606). ASC 340-40 introduces comprehensive guidance on accounting for costs of obtaining a contract within the scope of ASC 606 (see Section 13.2) and provides guidance on how to account for costs of fulfilling a contract with a customer that are not within the scope of another standard (see Section 13.3).

In developing the revenue standard’s cost guidance, the FASB and IASB did not intend to holistically reconsider cost accounting. Rather, they aimed to fill gaps resulting from the superseding of guidance on revenue (and certain contract costs) and promote convergence between U.S. GAAP and IFRS Accounting Standards. The boards also wanted to improve consistency in the application of certain cost guidance.

Often, costs specific to a contract will be incurred by an entity before the entity has a contract with a customer (e.g., precontract costs). When considering how to account for precontract costs, entities should be mindful that such costs may include both costs of obtaining a contract and costs of fulfilling a contract, and that the requirements with respect to each are different.