2.2 “Criteria” Versus “Factors” and “Indicators”
Various guidance throughout the revenue standard lists “criteria,”
“factors,” or “indicators.” Criteria are distinguishable from factors and
indicators.
Criteria are specific requirements that must be met for an entity to
make a determination. That is, criteria are determinative or are requirements in a
particular assessment. For example, as discussed in step 1 (Chapter 4), ASC 606-10-25-1 lists five criteria that
must all be met for an entity to conclude that a contract with a customer exists.
Similarly, as discussed in step 2 (Chapter 5),
ASC 606-10-25-19 lists two criteria that must be met for an entity to determine that
a good or service promised to a customer is distinct and therefore a performance
obligation. In that assessment, if one or both of those criteria are not met, the
promise is not distinct and is therefore not a separate performance obligation.
In contrast, factors and indicators are considerations that may
support a conclusion but are not determinative. For example, the guidance on
constraining estimates of variable consideration lists factors in ASC 606-10-32-12
“that could increase the likelihood or the magnitude of a revenue reversal”; and the
guidance on principal-versus-agent considerations lists indicators in ASC
606-10-55-39 that the entity is a principal. The indicators in ASC 606-10-55-39 are
intended to support an entity’s conclusion that the entity either does or does not
obtain control of a specified good or service before it is transferred to a
customer. For more information about constraints on variable consideration and
principal-versus-agent considerations, see Chapters
6 and 10.