15.5 Disclosure of Practical Expedients Used

The table below summarizes the disclosure requirements discussed in this section, including the disclosures that a nonpublic entity may elect not to apply as well as required interim disclosures.

Category	Disclosure Requirements	Election Available to Nonpublic Entities	Interim Requirement (ASC 270)
Practical expedients	Disclosure of practical expedients used.	Yes15	No

A number of practical expedients are available to both public business entities (PBEs) and nonpublic entities in the application of the recognition and measurement principles within the standard. Specific disclosures similar to accounting policy disclosures are required if an entity elects certain of these practical expedients. For example, an entity is required to disclose that it is electing the practical expedients related to (1) significant financing components (as discussed further in Chapter 6), (2) contract costs (as discussed further in Chapter 13), and (3) disclosures for remaining performance obligations (as discussed further in Section 15.2.4.3.1).

ASC 606-10

50-22 If an entity elects to use the practical expedient in either paragraph 606-10-32-18 (about the existence of a significant financing component) or paragraph 340-40-25-4 (about the incremental costs of obtaining a contract), the entity shall disclose that fact.

50-23 An entity, except for a public business entity, a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, or an employee benefit plan that files or furnishes financial statements with or to the SEC, may elect not to provide the disclosures in paragraph 606-10-50-22.

ASC 340-40

50-5 If an entity elects to use the practical expedient in paragraph 340-40-25-4 on the incremental costs of obtaining a contract, the entity shall disclose that fact.

50-6 An entity, except for a public business entity, a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, or an employee benefit plan that files or furnishes financial statements with or to the Securities and Exchange Commission, may elect not to provide the disclosure in paragraph 340-40-50-5.

ASC 952-606

50-1 If an entity elects to use the practical expedient in paragraph 952-606-25-2, the entity shall disclose that fact.

50-2 An entity that makes the accounting policy election to recognize pre-opening services as a single performance obligation as described in paragraph 952-606-25-3 shall disclose that fact.

Further, the amendments in ASU 2016-10, ASU 2016-12, and ASU 2021-02 include additional practical expedients related to the following:

Shipping and handling activities — ASU 2016-10 permits an entity to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service (i.e., a revenue element). An entity may also elect to account for shipping and handling as a promised service. The ASU also explains that shipping and handling activities performed before the control of a product is transferred do not constitute a promised service to the customer in the contract (i.e., they represent fulfillment costs). The election to account for shipping and handling services as a promised good or service or a fulfillment cost typically should not apply to companies whose principal service offering is shipping or transportation. Further, we believe that such election (1) should be applied consistently and (2) is available to entities that recognize revenue for the sale of goods either at a point in time or over time. Refer to Section 5.2.4.3 for further information.

An entity that elects to apply this accounting policy is required to provide the accounting policy disclosures in ASC 235-10-50-1 through 50-6.
Sales tax presentation — ASU 2016-12 permits entities to exclude from the transaction price all sales taxes that are assessed by a governmental authority and that are “imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes).” However, such an accounting policy election does not apply to taxes assessed on “an entity’s total gross receipts or imposed during the inventory procurement process.” Refer to Section 6.7 for further information.

An entity that elects to exclude sales taxes is required to provide the accounting policy disclosures in ASC 235-10-50-1 through 50-6.
Private-company franchisor — ASU 2021-02 allows a franchisor that is not a PBE (a “private-company franchisor”) to use a practical expedient when identifying performance obligations in its contracts with customers (i.e., franchisees) under ASC 606. When using the practical expedient, a private-company franchisor that has entered into a franchise agreement would treat certain preopening services provided to its franchisee as distinct from the franchise license. In addition, a private-company franchisor that applies the practical expedient must make a policy election to either (1) apply the guidance in ASC 606 to determine whether the preopening services that are subject to the practical expedient are distinct from one another or (2) account for those preopening services as a single performance obligation. The practical expedient and policy election are intended to reduce the cost and complexity of applying ASC 606 to preopening services associated with initial franchise fees. Refer to Section 5.3.5 for further information.

A private-company franchisor that elects to use the practical expedient is required to provide the disclosure in ASC 952-606-50-1. In addition, a private-company franchisor that elects to use the practical expedient and to account for preopening services as a single performance obligation is required to provide the disclosure in ASC 952-606-50-2.

If entities elect one or more practical expedients, they should disclose that fact in their financial statements. Entities should consider the appropriate placement for the disclosure of their use of practical expedients. For example, some or all of the elections might appropriately be included in “Significant Accounting Policies” (i.e., footnote 1), whereas it may be appropriate to include other elections in the revenue recognition footnote. The guidance does not dictate where such disclosures should be included; it only indicates that they must be included.

The illustrative disclosure below shows how an entity may disclose that management has elected certain practical expedients available under the revenue standard.

The illustrative disclosure below shows how an entity may describe its use of the practical expedient related to contract costs in accordance with ASC 606-10-50-22.

Footnotes

See footnote 8.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.