18.3 FASB Activities
18.3.1 TRG Update
Upon issuing the revenue standard, the FASB and IASB formed a joint revenue TRG.
The purpose of the TRG is not to issue guidance but instead to seek and provide feedback
on potential issues related to implementation of the revenue standard. By analyzing and
discussing potential implementation issues, the TRG helps the boards determine whether
they need to take additional action, such as providing clarification or issuing other
guidance. The TRG comprises financial statement preparers, auditors, and users from a
“wide spectrum of industries, geographic locations and public and private organizations,”
and board members of the FASB and IASB attend the TRG’s meetings. In addition,
representatives from the SEC, PCAOB, IOSCO, and AICPA are invited to observe the
meetings.
In January 2016, the IASB announced that it completed its decision-making
process related to clarifying the revenue standard and that it no longer plans to schedule
TRG meetings for IFRS constituents. Therefore, starting in April 2016, the TRG meetings
were FASB-only, but members of the IASB could participate as observers. However, it is
important for consistency and comparability of financial information that both domestic
registrants filing under U.S. GAAP and foreign private issuers filing under IFRS
Accounting Standards keep abreast of TRG developments in the United States in a manner
consistent with comments made by then SEC Deputy Chief Accountant
Wesley Bricker at the December 2015 AICPA Conference on Current SEC and PCAOB
Developments.
At the November 2016 TRG meeting — the last TRG meeting — the FASB announced
that no future TRG meetings were scheduled. However, the Board encouraged stakeholders to
submit implementation questions either directly to the TRG or through the FASB’s technical
inquiry process.
The FASB maintains a full list of questions discussed by the TRG, with links to the relevant
TRG Agenda Papers.
18.3.2 FASB Staff’s Revenue Recognition Implementation Q&As
In January 2020, the FASB issued its staff’s Revenue Recognition Implementation Q&As (the
“Implementation Q&As”). Compiled from TRG Agenda Papers and other previously issued
materials, the FASB staff’s Implementation Q&As are presented in a user-friendly
format.
For a topical listing of issues addressed in the Implementation Q&As, see Appendix C.
18.3.3 Final ASUs
As noted above, the FASB has issued a number of ASUs to amend and clarify the
guidance in the revenue standard. Largely the result of feedback provided by the TRG, the
Board’s updates to the revenue standard are discussed throughout this Roadmap as
applicable.
18.3.3.1 ASU 2015-14 on Deferral of the Effective Date
On August 12, 2015, the FASB issued ASU 2015-14, which deferred the effective date
of the Board’s revenue standard, ASU 2014-09, by one year for all entities and permitted
early adoption on a limited basis. Specifically:
-
For PBEs, the standard became effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption was permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods.
-
For nonpublic entities, the standard became effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Nonpublic entities were permitted to early adopt the standard as of the following:
-
Annual reporting periods beginning after December 15, 2016, including interim periods.
-
Annual reporting periods beginning after December 15, 2016, and interim periods within annual reporting periods beginning one year after the annual reporting period in which the standard was initially applied.
-
On June 3, 2020, the FASB issued ASU 2020-05, which permitted nonpublic entities
(i.e., entities that are not PBEs) that had not yet issued their financial statements or
made financial statements available for issuance as of June 3, 2020, to adopt ASC 606
for annual reporting periods beginning after December 15, 2019, and for interim
reporting periods within annual reporting periods beginning after December 15, 2020. See
Section 18.3.3.12 for
further details.
18.3.3.2 ASU 2016-08 on Principal-Versus-Agent Considerations
On March 17, 2016, the FASB issued ASU 2016-08, which amended the
principal-versus-agent implementation guidance and illustrations in the revenue
standard. The FASB issued the ASU in response to concerns identified by stakeholders,
including those related to (1) determining the appropriate unit of account under the
revenue standard’s principal-versus-agent guidance and (2) applying the indicators of
whether an entity is a principal or an agent in accordance with the revenue standard’s
control principle.
Key provisions of the ASU include:
- Assessing the nature of the entity’s promise to the customer — When a revenue transaction involves a third party in providing goods or services to a customer, the entity must determine whether the nature of its promise to the customer is to provide the underlying goods or services (i.e., the entity is the principal in the transaction) or to arrange for the third party to provide the underlying goods or services (i.e., the entity is the agent in the transaction). See Section 10.1 for further details.
- Identifying the specified goods or services — The ASU clarified that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. See Section 10.1.1 for further details.
- Application of the control principle — To help an entity determine whether it controls a specified good or service before the good or service is transferred to the customer (and therefore determine whether it is the principal), the ASU added ASC 606-10-55-37A. See Section 10.2 for further details.
- Indicators of control — The ASU removed from the revenue standard two of the five indicators used in the evaluation of control (i.e., exposure to credit risk and whether consideration is in the form of a commission). In addition, the ASU reframed the remaining three indicators to help an entity determine when it is acting as a principal rather than as an agent. Further, the ASU added language to the indicators that explains how they are related to the control principle under the revenue standard. See Section 10.2 for further details.
18.3.3.3 ASU 2016-10 on Identifying Performance Obligations and Licensing
On April 14, 2016, the FASB issued ASU 2016-10, which amended certain aspects of
the revenue standard, specifically the standard’s guidance on identifying performance
obligations and the implementation guidance on licensing. The amendments in the ASU
reflect feedback received by the TRG.
ASU 2016-10 amended the revenue standard as follows:
-
Identifying performance obligations:
-
Immaterial promised goods or services — Entities may disregard goods or services promised to a customer that are immaterial in the context of the contract. See Section 5.2.3 for further details.
-
Shipping and handling activities — Entities can elect to account for shipping or handling activities occurring after control of the related good has passed to the customer as a fulfillment cost rather than as a revenue element (i.e., a promised service in the contract). See Section 5.2.4.3 for further details.
-
Identifying when promises represent performance obligations — ASU 2016-10 refined the revenue standard’s separation criteria for assessing whether promised goods and services are distinct, specifically the “separately identifiable” principle (the “distinct within the context of the contract” criterion) and supporting factors. See Section 5.3.2.2 for further details.
-
-
Licensing implementation guidance:
-
Determining the nature of an entity’s promise in granting a license — Intellectual property (IP) is classified as either functional or symbolic, and such classification should generally dictate whether, for a license granted to that IP, revenue must be recognized at a point in time or over time, respectively. See Section 12.4 for further details.
-
Sales- or usage-based royalties — The sales- or usage-based royalty exception applies whenever the royalty is predominantly related to a license of IP. ASU 2016-10 therefore indicates that an “entity should not split a sales-based or usage-based royalty into a portion subject to the recognition guidance on sales-based and usage-based royalties and a portion that is not subject to that guidance.” See Section 12.7 for further details.
-
Restrictions of time, geographic location, and use — ASU 2016-10’s examples illustrate the distinction between restrictions that represent attributes of a license and provisions that specify that additional licenses (i.e., additional performance obligations) have been promised. See Section 12.3.2 for further details.
-
Renewals of licenses that provide a right to use IP — Revenue should not be recognized for renewals or extensions of licenses to use IP until the renewal period begins. See Section 12.6 for further details.
-
18.3.3.4 ASU 2016-11 on Rescission of SEC Guidance Because of ASUs 2014-09 and 2014-16
On May 3, 2016, the FASB issued ASU 2016-11, which rescinded certain SEC
guidance in light of ASUs 2014-09 and 2014-16. Specifically, ASU 2016-11 rescinded
the following SEC guidance upon the adoption of ASU 2014-09:
-
ASC 605-20-S99-2 (formerly EITF Issue 91-9) on revenue and expense recognition for freight services in process.
-
ASC 605-45-S99-1 (formerly EITF Issue 00-10) on accounting for shipping and handling fees and costs.
-
ASC 605-50-S99-1 (formerly EITF Issue 01-9) on accounting for consideration given by a vendor to a customer.
-
ASC 932-10-S99-5 (formerly EITF Issue 90-22) on accounting for gas-balancing arrangements.
18.3.3.5 ASU 2016-12 on Narrow-Scope Improvements and Practical Expedients
On May 9, 2016, the FASB issued ASU 2016-12, which amended certain aspects of
ASU 2014-09. The amendments address certain implementation issues identified by the TRG
and clarify, rather than change, the revenue standard’s core revenue recognition
principles. Changes include the following:
-
Collectibility — ASU 2016-12 clarified the objective of the entity’s collectibility assessment and provided additional guidance on when an entity would recognize as revenue consideration it receives if the entity concludes that collectibility is not probable. See Section 4.3.5.3 for further details.
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Presentation of sales taxes and other similar taxes collected from customers — Entities are permitted to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., to exclude from the transaction price sales taxes that meet certain criteria). See Section 6.7 for further details.
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Noncash consideration — An entity’s calculation of the transaction price for contracts containing noncash consideration would include the fair value of the noncash consideration to be received as of the contract inception date. Further, subsequent changes in the fair value of noncash consideration after contract inception would be included in the transaction price as variable consideration (subject to the variable consideration constraint) only if the fair value varies for reasons other than its form. See Section 6.5 for further details.
-
Contract modifications and completed contracts at transition — The ASU established a practical expedient for contract modifications at transition and defined completed contracts as those for which all (or substantially all) revenue was recognized under the applicable revenue guidance before the revenue standard was initially applied.
-
Transition technical correction — Entities electing to use the full retrospective transition method to adopt the revenue standard were no longer required to disclose the effect of the change in accounting principle on the period of adoption (as historically required by ASC 250-10-50-1(b)(2)); however, entities were still required to disclose the effects on preadoption periods that were retrospectively adjusted.
18.3.3.6 ASU 2016-20 on Technical Corrections and Improvements
On December 21, 2016, the FASB issued ASU 2016-20, which amended certain aspects of
ASU 2014-09 and includes technical corrections intended to clarify, rather than change,
the revenue standard’s core revenue recognition principles.
Key provisions of the amendments are summarized in the table below, which is reproduced from ASU
2016-20.
Area for Correction or Improvement | Summary of Amendments |
|---|---|
|
Issue 1: Loan Guarantee Fees
| |
|
Topic 606 specifically identifies a scope exception for
guarantees (other than product or service warranties) within the scope of
Topic 460, Guarantees. Stakeholders indicated that a few consequential
amendments included in Update 2014-09 are inconsistent on whether fees from
financial guarantees are within the scope of Topic 606.
|
The amendments in this Update clarify that guarantee fees
within the scope of Topic 460 (other than product or service warranties) are
not within the scope of Topic 606. Entities should see Topic 815,
Derivatives and Hedging, for guarantees accounted for as
derivatives.
|
|
Issue 2: Contract Costs — Impairment
Testing
| |
|
Subtopic 340-40, Other Assets and Deferred Costs —
Contracts with Customers, includes impairment guidance for costs
capitalized in accordance with the recognition provisions of that Subtopic.
Stakeholders raised some questions about the impairment testing of those
capitalized costs.
|
The amendments in this Update clarify that when performing
impairment testing an entity should (a) consider expected contract renewals
and extensions and (b) include both the amount of consideration it already
has received but has not recognized as revenue and the amount it expects to
receive in the future.
|
|
Issue 3: Contract Costs — Interaction
of Impairment Testing With Guidance in Other Topics
| |
|
Some stakeholders raised questions about the interaction
of the impairment testing in Subtopic 340-40 with guidance in other
Topics.
|
The amendments in this Update clarify that impairment
testing first should be performed on assets not within the scope of Topic
340, Topic 350, Intangibles — Goodwill and Other, or Topic 360,
Property, Plant, and Equipment (such as Topic 330,
Inventory), then assets within the scope of Topic 340, then asset
groups and reporting units within the scope of Topic 360 and Topic 350.
|
|
Issue 4: Provisions for Losses on
Construction-Type and Production-Type Contracts
| |
|
When issuing Update 2014-09, the Board decided to exclude
specific guidance in Topic 606 for onerous contracts. However, the Board
decided to retain the guidance on the provision for loss contracts in
Subtopic 605-35, Revenue Recognition — Construction-Type and
Production-Type Contracts. In the consequential amendments of Update
2014-09, the testing level was changed to the performance obligation level
(from the segment level). Stakeholders indicated that this amendment, in
some circumstances, may require an entity to perform the loss assessment at
a lower level than legacy practice.
|
The amendments in this Update require that the provision
for losses be determined at least at the contract level. However, the
amendments allow an entity to determine the provision for losses at the
performance obligation level as an accounting policy election.
|
|
Issue 5: Scope of Topic 606
| |
|
In Topic 606, a scope exception exists for insurance
contracts within the scope of Topic 944, Financial Services —
Insurance. The Board’s intention was to exclude from Topic 606 all
contracts that are within the scope of Topic 944, not only insurance
contracts (for example, investment contracts that do not subject an
insurance entity to insurance risk).
|
The amendments in this Update remove the term insurance
from the scope exception to clarify that all contracts within the scope of
Topic 944 are excluded from the scope of Topic 606.
|
|
Issue 6: Disclosure of Remaining
Performance Obligations
| |
|
Topic 606 requires an entity to disclose information about
its remaining performance obligations, including the aggregate amount of the
transaction price allocated to performance obligations that are unsatisfied
(or partially unsatisfied) as of the end of the reporting period. Topic 606
also includes optional exemptions from that disclosure for contracts with an
original duration of one year or less and performance obligations in which
revenue is recognized in accordance with paragraph 606-10-55-18.
Stakeholders questioned whether the Board intended for an entity to estimate
variable consideration for disclosure in other circumstances in which an
entity is not required to estimate variable consideration to recognize
revenue.
|
The amendments in this Update provide optional exemptions
from the disclosure requirement for remaining performance obligations for
specific situations in which an entity need not estimate variable
consideration to recognize revenue.
The amendments in this Update also expand the information
that is required to be disclosed when an entity applies one of the optional
exemptions.[1]
|
|
Issue 7: Disclosure of Prior-Period
Performance Obligations
| |
|
Topic 606 requires an entity to disclose revenue
recognized in the reporting period from performance obligations satisfied
(or partially satisfied) in previous periods. Stakeholders indicated that
the placement of the disclosure in the Codification results in confusion
about whether this disclosure applies only to performance obligations with
corresponding contract balances or to all performance obligations.
|
The amendments in this Update clarify that the disclosure
of revenue recognized from performance obligations satisfied (or partially
satisfied) in previous periods applies to all performance obligations and is
not limited to performance obligations with corresponding contract
balances.
|
|
Issue 8: Contract Modifications
Example
| |
|
Example 7 in Topic 606 illustrates the application of the
guidance on contract modifications. Some stakeholders perceived minor
inconsistencies with the contract modifications guidance in Topic 606.
|
The amendments in this Update better align Example 7 with
the principles in Topic 606.
|
|
Issue 9: Contract Asset Versus
Receivable
| |
|
Example 38, Case B in Topic 606 illustrates the
application of the presentation guidance on contract assets and receivables.
Some stakeholders expressed concern that the example indicates that an
entity cannot record a receivable before its due date.
|
The amendments in this Update provide a better link
between the analysis in Example 38, Case B and the receivables presentation
guidance in Topic 606.
|
|
Issue 10: Refund Liability
| |
|
Example 40 in Topic 606 illustrates the recognition of a
receivable and a refund liability. Some stakeholders expressed concern that
the example indicates that a refund liability should be characterized as a
contract liability.
|
The amendment in this Update removes the reference to the
term contract liability from the journal entry in Example 40.
|
|
Issue 11: Advertising Costs
| |
|
Update 2014-09 supersedes much of the guidance in Subtopic
340-20, Other Assets and Deferred Costs — Capitalized Advertising
Costs, because it would have conflicted with new cost capitalization
guidance in Subtopic 340-40. Therefore, an entity that previously
capitalized advertising costs in accordance with the guidance in Subtopic
340-20 would apply the capitalization guidance in Subtopic 340-40 upon the
adoption of Update 2014-09. Guidance on when to recognize a liability had
been included within Subtopic 340-20 and was inadvertently superseded by
Update 2014-09.
|
The amendments in this Update reinstate the guidance on
the accrual of advertising costs and also move the guidance to Topic 720,
Other Expenses.
|
|
Issue 12: Fixed-Odds Wagering
Contracts in the Casino Industry
| |
|
Subtopic 924-605, Entertainment — Casinos — Revenue
Recognition, [historically included] explicit guidance that
[identified] fixed-odds wagering as gaming revenue. That industry-specific
guidance was superseded by Update 2014-09, along with nearly all existing
industry-specific revenue guidance in GAAP. Therefore, some stakeholders
questioned whether fixed-odds wagering contracts are within the scope of
Topic 606 or, rather, whether they should be accounted for as derivatives
within the scope of Topic 815.
|
The amendments in this Update (a) create a new Subtopic
924-815, Entertainment — Casinos — Derivatives and Hedging, which
includes a scope exception from derivatives guidance for fixed-odds wagering
contracts and (b) includes a scope exception within Topic 815 for fixed-odds
wagering contracts issued by casino entities.
|
|
Issue 13: Cost Capitalization for
Advisors to Private Funds and Public Funds
| |
|
A consequential amendment included in Update 2014-09 moved
cost guidance from Subtopic 946-605, Financial Services — Investment
Companies — Revenue Recognition, to Subtopic 946-720, Financial
Services — Investment Companies — Other Expenses. This amendment was
intended to move the guidance only and was not intended to change practice.
However, the consequential amendment in Update 2014-09 could have resulted
in inconsistent accounting for offering costs among advisors to public funds
and private funds.
|
The amendments in this Update align the
cost-capitalization guidance for advisors to both public funds and private
funds in Topic 946.
|
ASU 2016-20 is based on two proposed ASUs. All except one of the amendments
proposed in those exposure drafts are included in the final ASU. For the exception,
which addresses preproduction costs related to long-term supply arrangements, the FASB
subsequently decided to discontinue reconsideration of that topic because the Board
concluded that additional guidance was not necessary. For more information about
accounting for preproduction costs of a long-term supply arrangement, see Section 13.3.4.
18.3.3.7 ASU 2017-13 on Amendments to SEC Paragraphs and Rescission of Prior SEC Staff Announcements and Observer Comments
On September 29, 2017, the FASB issued ASU 2017-13, which amended the transition
guidance in ASC 606-10-65 to include the SEC staff announcement at the July 20, 2017,
EITF meeting regarding the ability of certain PBEs to use the non-PBE effective date
when adopting the revenue standard.
In addition, ASU 2017-13 rescinded the SEC staff guidance in ASC 605-20-S99-1 (formerly EITF Topic D-96) on accounting for management fees based on a formula upon
adoption of the revenue standard.
18.3.3.8 ASU 2017-14 on Amendments to SEC Paragraphs Pursuant to SAB 116 and SEC Release No. 33-10403
On November 22, 2017, the FASB issued ASU 2017-14, which codified certain SEC
guidance on revenue and rescinds other such guidance that is superseded. Specifically,
the ASU codified in ASC 606-10-S25-1 the text of the SEC’s 2017 release on recognizing revenue from vaccines placed in a federal
government stockpile and rescinded the legacy SEC guidance in ASC 605-15-S99-1 on this
topic. For more information about the SEC’s 2017 release, see Section 18.2.2.
In addition, ASU 2017-14 rescinded certain SEC staff guidance in light of SAB
116. As discussed in Section 18.2.1, SAB 116
rendered SAB Topics 8 and 13 inapplicable upon the adoption of ASC 606. Accordingly, ASU
2017-14 rescinded the following SEC staff guidance upon the adoption of ASU 2014-09:
-
ASC 605-10-S99-1, in which the text of SAB Topic 13 was codified to reflect the SEC staff’s views on general recognition guidance.
-
ASC 605-15-S99-2, in which the text of SAB Topic 8.A was codified to reflect the SEC staff’s views on retailers’ recognition of revenue from (1) sales of leased or licensed departments and (2) fees on commissions in a service arrangement.
-
ASC 605-15-S99-3, in which the text of SAB Topic 8.B was codified to reflect the SEC staff’s views on disclosures related to finance charges imposed by department stores and other retailers on credit sales.
Further, ASU 2017-14 amended ASC 220-10-S99-7 to reflect SAB 116’s amendments to
SAB Topic 11.A, as discussed in Section 18.2.1.
Those amendments to SAB Topic 11.A clarify that operating-differential subsidies
presented under a revenue caption must be presented separately from revenue from
contracts with customers accounted for under ASC 606.
18.3.3.9 ASU 2018-08 on Accounting for Contributions Received and Made
On June 21, 2018, the FASB issued ASU 2018-08, which clarified the scope and
accounting guidance for contributions received and made. Specifically, the ASU indicates
that its amendments are intended, in part, to help entities evaluate “whether
transactions should be accounted for as contributions (nonreciprocal transactions)
within the scope of [ASC 958] or as exchange (reciprocal) transactions subject to other
guidance,” such as ASC 606. The ASU explains that while the issues it aims to address
have been long-standing, “the amendments in [ASU 2014-09] place an increased focus on
the issues because those amendments add new disclosure requirements and eliminate
certain limited exchange transaction guidance that was previously contained in [ASC]
958-605.”
18.3.3.10 ASU 2018-18 on Clarifying the Interaction Between ASC 808 and ASC 606
On November 5, 2018, the FASB issued ASU 2018-18, which made targeted improvements
to the guidance on collaborative arrangements in ASC 808. See Section 3.2.9 for further discussion of
collaborative arrangements and the ASU’s amendment to ASC 606-10-15-3.
18.3.3.11 ASU 2019-08 on Share-Based Consideration Payable to a Customer
On November 11, 2019, the FASB issued ASU 2019-08, which clarified the accounting for
share-based payments issued as consideration payable to a customer in accordance with
ASC 606. Under the ASU, entities apply the guidance in ASC 718 to measure and classify
share-based payments issued to a customer that are not in exchange for a distinct good
or service (i.e., share-based sales incentives). See Section 6.6 for further details.
18.3.3.12 ASU 2020-05 on Deferral of the Effective Date for Certain Entities
On June 3, 2020, the FASB issued ASU 2020-05, which amended the effective dates
of the Board’s standards on revenue (ASC 606) and leasing (ASC 842) to give immediate
relief to certain entities as a result of the widespread adverse economic effects and
business disruptions caused by the COVID-19 pandemic. Specifically, the Board deferred
the effective dates of (1) ASC 606 for private companies and private not-for-profit
entities and (2) ASC 842 for private companies, private not-for-profit entities, and
public not-for-profit entities. Nonpublic entities (i.e., entities that are not PBEs)
were permitted to adopt ASC 606 for annual reporting periods beginning after December
15, 2019, and for interim reporting periods within annual reporting periods beginning
after December 15, 2020. However, the deferrals applied only if those entities had not
yet issued their financial statements (or made their financial statements available for
issuance) as of June 3, 2020.
18.3.3.13 ASU 2021-02 on Practical Expedient for Private-Company Franchisors on the Identification of Performance Obligations
On January 28, 2021, the FASB issued ASU 2021-02, which 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. See Section 5.3.5 for further
details.
18.3.3.14 ASU 2021-08 on Contract Assets and Contract Liabilities From Contracts With Customers Acquired in a Business Combination
In October 2021, the FASB issued ASU 2021-08, which amended ASC 805 to address
inconsistencies and diversity in practice related to the accounting for revenue
contracts with customers acquired in a business combination. The ASU requires an entity
to apply the guidance in ASC 606 when recognizing and measuring contract assets and
contract liabilities arising from those contracts. See Section 3.2.13 for further details.
18.3.4 Postimplementation Review
After the FASB issues a major new accounting standard, it begins a
postimplementation review (PIR) process to evaluate whether the standard is achieving its
objective by providing users of financial statements with relevant information that
justifies the costs of providing it. This process enables the Board to solicit and
consider stakeholder input and FASB staff research.
The FASB is currently performing a PIR of the revenue standard. The PIR
process is conducted in three stages: (1) post-issuance-date implementation monitoring,
(2) post-effective-date evaluation of costs and benefits, and (3) summary of research and
reporting. The first stage of the revenue standard’s PIR consisted of various activities,
including public meetings of the TRG, responses to technical inquiries, public webcasts,
and the issuance of multiple ASUs to address effective-date deferrals and clarification or
simplification of the revenue standard.2
The FASB staff has completed most of its PIR outreach and research. At
the July 28, 2021, and September 21, 2022, FASB meetings, the Board discussed
feedback received and research performed to date on the revenue standard. In handouts
prepared for the Board’s July
2021 and September 2022 meetings, the FASB staff noted that stakeholder feedback
on the revenue standard was positive overall, particularly from users of financial
statements since the standard results in more useful and transparent information, improved
disclosures, and comparability across entities and industries. The staff further observed
that while many preparers noted significant one-time costs associated with implementation
of the standard, they also highlighted that the standard has been beneficial in the long
run. Since the Board’s July 2021 meeting, the FASB staff has performed research on various
topics identified during its post-effective-date stakeholder outreach, including (1)
principal-versus-agent considerations, (2) licensing, (3) variable consideration, (4)
short-cycle manufacturing, and (5) disclosures. Although applying the revenue standard in
these areas still requires significant judgment, additional standard setting is not
currently on the FASB’s technical agenda and may not occur as a result of the FASB staff’s
research.
The FASB staff will continue to monitor implementation of the revenue
standard and provide updates to the Board on any emerging issues identified. As the PIR of
the revenue standard progresses, the Board and its staff may identify areas of improvement
that could result in future standard setting.
18.3.5 On the Horizon
18.3.5.1 Derivative Scope Refinements
At the FASB’s December 6, 2023, meeting, the Board discussed preagenda work on
challenges associated with applying the definition of a derivative and the derivative
scope exceptions to arrangements with contingent features. Such challenges had been
identified in stakeholders’ responses to the FASB staff’s June 2021 invitation to comment (ITC). During the meeting, the
Board decided to add a project to its technical agenda to address these challenges.
Subsequently, at the FASB’s April 10, 2024, meeting, the Board further discussed the
scope of its guidance on derivatives and decided to issue an exposure draft for public
comment.
On July 23, 2024, the FASB issued a proposed ASU that would refine the scope of the
guidance on derivatives in ASC 815 (as well as clarify the scope of the guidance on
share-based payments from a customer in ASC 606, as discussed in the next section). The
proposed ASU is intended, in part, to address concerns about the application of
derivative accounting to contracts that have features based on the operations or
activities of one of the parties to the contract.
For more information, see Deloitte’s August 2, 2024, Heads Up.
18.3.5.2 Share-Based Consideration Received From a Customer
On July 23, 2024, the FASB issued a proposed ASU that is intended to reduce
diversity in the accounting for share-based payments in revenue contracts (as well as
address concerns about the application of derivative accounting to contracts that have
features based on the operations or activities of one of the parties to the contract, as
discussed in the section above). As stated in the proposed ASU, the Board decided to
issue it, in part, in response to “feedback from some stakeholders that there is a lack
of clarity about which guidance an entity should apply to recognize share-based
payments, such as warrants or shares, received from a customer that are consideration
for the transfer of goods or services.”
The proposed ASU would clarify that when an entity has a right to receive a share-based
payment from its customer in connection with a contract with that customer, the
share-based payment would be accounted for as noncash consideration within the scope of
ASC 606. That is, under the proposed ASU, “unless and until the share-based payment is
recognized as an asset” in accordance with ASC 606, the right to receive the share-based
payment would not be within the scope of ASC 815 or ASC 321.
For more information, see Deloitte’s August 2, 2024, Heads Up.
18.3.5.3 Share-Based Consideration Payable to a Customer
The FASB received an agenda request to address the current diversity in practice
related to whether conditions in a share-based sales incentive provided to a customer
that is tied to the customer’s purchase levels should be treated as performance
conditions or service conditions. In response to this feedback, the Board decided at its
June 12, 2024, meeting to add a project to its technical agenda to clarify the guidance
in ASC 606 and ASC 718 on an entity’s share-based payments to a customer that are
treated as consideration payable to the customer.
On September 30, 2024, the FASB issued a proposed
ASU that would clarify the guidance in both ASC 606 and ASC 718 on the
accounting for share-based payment awards that are granted by an entity as consideration
payable to its customer. The proposed ASU’s purpose is to reduce diversity in practice
and improve existing guidance, primarily by revising the definition of a “performance
condition” and eliminating a forfeiture policy election specifically for service
conditions associated with share-based consideration payable to a customer. In addition,
the proposed ASU would clarify that the variable consideration constraint guidance in
ASC 606 does not apply to share-based consideration payable to a customer regardless of
whether an award’s grant date has occurred.
Comments on the proposal are due by November 14, 2024. For more information, see
Deloitte’s October 1, 2024, Heads Up.
18.3.5.4 Accounting for Government Grants
On June 13, 2022, the FASB staff issued an ITC on potentially
incorporating the guidance of IAS 20 on accounting for government grants into U.S. GAAP
for business entities. Comments on the ITC were due by September 12, 2022.
On November 1, 2023, the FASB added to its technical agenda a
project on the recognition,
measurement, and presentation of government grants received by business entities. During
the meeting, the Board discussed potential scope, recognition, measurement,
presentation, and disclosure requirements related to the accounting for government
grants. It tentatively decided that a government grant should be recognized when it is
probable that the entity will comply with the conditions of the grant and the grant will
be received. In addition, the Board reached tentative decisions on the recognition,
measurement, and presentation requirements for a government grant related to income and
assets, respectively.
On April 3, 2024, the Board tentatively decided to leverage the
accounting framework of IAS 20 for government grants and make targeted improvements to
the guidance on the basis of certain previous Board decisions, including decisions
related to scope and the recognition threshold.
On June 4, 2024, the Board tentatively decided that the disclosure
requirements of ASC 832 should apply to government grants within the scope of the
project. The Board also tentatively decided to provide specific guidance on whether and,
if so, and how to recognize and measure grant-related liabilities in a business
combination.
The FASB is expected to include its tentative decisions in a
forthcoming proposed ASU.
Footnotes
[1]
At its October 19, 2016, meeting, the FASB
redeliberated its original technical correction on disclosures of
remaining performance obligations, which was discussed at the August 31,
2016, meeting but for which no tentative decision was reached. At the
October 19 meeting, the staff presented five alternatives on the issue,
which were compiled after additional outreach was performed at the
request of the Board. After extensive deliberation, the Board ultimately
decided to move forward with the amendments as originally proposed.
However, the Board noted the importance of monitoring adoption of the
disclosure requirements to determine what information preparers were
disclosing and what information investors were using so that the Board
could assess whether additional amendments were necessary once
implementation reviews were completed.
2
See Section
18.3.3 for an overview of the ASUs issued.