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TRG Snapshot Newsletter

Meeting on Revenue — April 2016

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Meeting on Revenue — April 2016

This TRG Snapshot summarizes the April 18, 2016, meeting of the revenue transition resource group (TRG) created by the FASB and IASB.

Footnotes

1
For titles of FASB Accounting Standards Codification (ASC or the “Codification”) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
2
IFRS 15, Revenue From Contracts With Customers.
3
International Organization of Securities Commissions.
4
Emerging Issues Task Force (EITF) Topic No. D-96, “Accounting for Management Fees Based on a Formula,” codified in ASC 605-20-S99-1.
5
The FASB staff notes in TRG Agenda Paper 50 that it understands that diversity in practice currently exists regarding the method entities use to account for carried interests. In addition, on the basis of outreach performed, the FASB staff noted that entities that apply Method 1 “generally expressed views that the accounting model under Topic 606 is sufficient,” while those applying Method 2 believed that under ASC 606, “the economics . . . would not be faithfully represented . . . especially for long-term arrangements, because revenue recognition would be deferred significantly longer than current practice.”
6
Quoted from paragraph 12 of TRG Agenda Paper 50.
7
ASC 606-10-32-12.
8
Quoted from paragraph 23 of TRG Agenda Paper 50.
9
FASB Accounting Standards Update No. 2015-02, Amendments to the Consolidation Analysis.
10
See Deloitte’s March 2016 TRG Snapshot for additional information.
11
Quoted from paragraphs 35 and 50 of TRG Agenda Paper 54.
12
After originating a loan (or selling an originated loan but retaining rights to service the loan), a financial institution may perform services that include communicating with the borrower; collecting payments for interest, principal, and other escrow amounts; and performing recordkeeping activities.
13
Deposit-related fees are those that a financial institution charges to a customer for amounts on deposit with the financial institution. Fees may be charged to give customers access their funds and to cover other activities, including recordkeeping and reporting. In addition, fees may be transaction-based (such as fees to withdraw funds through an automated teller machine) or may not be transaction-based (such as account maintenance fees).
14
Fees charged by a financial institution to a borrower on a loan, for example, in return for the financial institution’s acting as a third-party guarantor on the borrower’s debt.
15
Paragraph 11 of TRG Agenda Paper 52 notes that some entities believe that there is a close link between ASC 860’s asset and liability remeasurement requirements and the collection of servicing fees (which gives rise to mortgage servicing income).
16
Quoted from paragraph 61 of TRG Agenda Paper 52.
17
FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.
18
FASB Accounting Standards Update No. 2016-10, Identifying Performance Obligations and Licensing. For a summary of the ASU, see Deloitte’s April 15, 2016, Heads Up.
19
ASC 606-10-25-27 states: “An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met:
  1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs [crossreferences omitted].
  2. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced [cross-reference omitted].
  3. The entity’s performance does not create an asset with an alternative use to the entity . . . and the entity has an enforceable right to payment for performance completed to date [cross-reference omitted].”
20
ASC 606-10-55-16 through 55-21.
21
Footnote 1 in TRG Agenda Paper 53 notes that as used in the discussion, “milestones” refer to measures of progress (i.e., they correlate to an entity’s performance toward complete satisfaction of a performance obligation) rather than the “milestone method” under existing U.S. GAAP.
22
Quoted from paragraph 19 of TRG Agenda Paper 53.
23
Quoted from paragraph 20 of TRG Agenda Paper 53.
24
ASC 606-10-25-10 through 25-13.
25
ASC 606-10-45-1 through 45-5.
26
See ASC 606-10-45-4 for additional information.
27
Quoted from paragraph 14 of TRG Agenda Paper 51.