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TRG Snapshot Newsletter

Summary of Revenue Implementation Issues Discussed to Date — March 2016

TRG Snapshot
March 2016
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Summary of Revenue Implementation Issues Discussed to Date

Footnotes

1
FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.
2
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.”
3
IFRS 15, Revenue From Contracts With Customers.
4
International Organization of Securities Commissions.
5
Wesley Bricker, deputy chief accountant in the SEC’s Office of the Chief Accountant (OCA), spoke about the implementation of the new revenue standard at the 43rd Annual Securities Regulation Institute (sponsored by the Northwestern Pritzker School of Law).
6
FASB Accounting Standards Update No. 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date.
7
Public business entities, certain not-for-profit entities, and certain employee benefit plans.
8
As used in (1) ASC 250 and (2) IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
9
It was noted that these issues pertain primarily to U.S. GAAP but that similar issues could arise under IFRSs.
10
Discussed in ASC 606-10-25-27 (paragraph 35 of IFRS 15).
11
IFRS 9, Financial Instruments.
12
In 2007, the IFRIC concluded that fixed-odds wagering contracts should be accounted for as derivatives under IAS 39, Financial Instruments: Recognition and Measurement (or IFRS 9, Financial Instruments, if an entity is required to adopt it).
13
Fixed-odds wagers are wagers placed by bettors (i.e., customers) who typically know the odds of winning in gaming activities (e.g., table games, slot machines, keno, bingo, and sports and race betting) at the time the bets are placed with gaming industry entities.
14
Contributions are defined as nonreciprocal transfers to a not-for-profit entity. They are distinguishable from exchange transactions, which are reciprocal transfers.
15
This topic applies only to U.S. GAAP because IFRSs do not provide industry-specific guidance for not-for-profit entities. See ASC 958-605 for guidance on revenue recognition by not-for-profit entities under existing U.S. GAAP.
16
ASC 606-10-25-6 through 25-8; paragraphs 14 through 16 of IFRS 15.
17
ASC 606-10-55-42; paragraph B40 of IFRS 15.
18
ASC 606-10-25-18 and ASC 606-10-55-42; paragraphs 26 and B40 of IFRS 15.
19
ASC 606-10-25-18(e); paragraph 26(e) of IFRS 15.
20
Paragraph BC113 of the new revenue standard’s Basis for Conclusions.
21
ASC 606-10-25-14 and 25-15; paragraphs 22 and 23 of IFRS 15.
22
Paragraph 23 of IFRS 15.
23
Quoted text is from paragraph 14 of TRG Agenda Paper 27.
24
Quoted text is from paragraph 20 of TRG Agenda Paper 27.
25
See footnote 24.
26
The objective in step 4 is to allocate the transaction price to each distinct good or service “in an amount that depicts the amount of consideration to which the entity expects to be entitled” in transferring the good or service to the customer on the basis of the relative standalone selling price of each distinct good or service. However, if the criteria in ASC 606-10-32-39 through 32-41 (paragraphs 84 through 86 of IFRS 15) are met, variable consideration is excluded from this allocation method.
27
ASC 606-10-25-2 and ASC 606-10-55-42; paragraphs 10 and B40 of IFRS 15.
28
ASC 606-10-32-42 through 32-45; paragraphs 87 through 90 of IFRS 15.
29
ASC 606-10-25-10 through 25-13; paragraphs 18 through 21 of IFRS 15.
30
This issue was also discussed at the October 2014 TRG meeting. For more information, see Deloitte’s October 2014 TRG Snapshot.
31
ASC 606-10-55-54 through 55-64; paragraphs B52 through B62 of IFRS 15.
32
ASC 606-10-55-60; paragraph B58 of IFRS 15.
33
ASC 606-10-55-65; paragraph B63 of IFRS 15.
34
ASC 606-10-32-11 through 32-14; paragraphs 56 through 59 of IFRS 15.
35
ASC 606-10-32-28 through 32-41; paragraphs 73 through 86 of IFRS 15.
36
ASC 606-10-55-33; paragraph B31 of IFRS 15.
37
Quoted text is from paragraph 28 of TRG Agenda Paper 29.
38
The new revenue standard indicates that when consideration is in a form other than cash (i.e., noncash consideration), an entity should determine the transaction price by measuring the noncash consideration at fair value (ASC 606-10-32-21 through 32-24; paragraphs 66 through 69 of IFRS 15).
39
ASC 606-10-32-25 through 32-27; paragraphs 70 through 72 of IFRS 15.
40
Like the term “probable” in step 1 regarding the collectibility threshold, “probable” in this context has the same meaning as in ASC 450-20-20: “the future event or events are likely to occur.” In IFRS 15, the IASB uses the term “highly probable,” which has the same meaning as the FASB’s “probable.”
41
ASC 606-10-32-16; paragraph 61 of IFRS 15.
42
ASC 606-10-32-17; paragraph 62 of IFRS 15.
43
As expressed in paragraph 20 of TRG Agenda Paper 14.
44
ASC 606-10-10-4; paragraph 4 of IFRS 15.
45
The guidance states that there is no significant financing component when the “difference between the promised consideration and the cash selling price of the good or service (as described in [ASC] 606-10-32-16 [paragraph 62(c) of IFRS 15]) arises for reasons other than the provision of finance to either the customer or the entity, and the difference between those amounts is proportional to the reason for the difference. For example, the payment terms might provide the entity or the customer with protection from the other party failing to adequately complete some or all of its obligations under the contract.”
46
ASC 606-10-32-18 (paragraph 63 of IFRS 15) states, “As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.”
47
Paragraph B25 of IFRS 15.
48
ASC 606-10-32-37; paragraph 82 of IFRS 15.
49
ASC 606-10-32-40 and 32-41; paragraphs 85 and 86 of IFRS 15.
50
Paragraph 86 of IFRS 15.
51
ASC 606-10-25-27; paragraph 35 of IFRS 15.
52
Based on the value of goods or services transferred to the customer.
53
Based on an entity’s efforts or inputs in transferring goods or services to customers.
54
ASC 606-10-55-18; paragraph B16 of IFRS 15.
55
Considered in TRG Agenda Paper 40.
56
Quoted text is from TRG Agenda Paper 40. See paragraph BC167 of the new revenue standard’s Basis for Conclusions for additional information about this notion. The staffs also clarified that the phrase “value to the customer” has a context in ASC 606-10-55-17 (paragraph B15 of IFRS 15) that differs from its context in ASC 606-10-55-18 (paragraph B16 of IFRS 15).
57
Quoted text is from TRG Agenda Paper 40.
58
In paragraph 3 of TRG Agenda Paper 33, the staffs noted that pre-CED activities may include (1) “administrative tasks that neither result in the transfer of a good or service to the customer, nor fulfil the anticipated contract”; (2) “activities to fulfil the anticipated contract but which do not result in the transfer of a good or service, such as set-up costs”; or (3) “activities that transfer a good or service to the customer at or subsequent to the CED.”
59
See ASC 606-10-25-27(a); paragraph 35(a) of IFRS 15.
60
Quoted text is from TRG Agenda Paper 43.
61
FASB Accounting Standards Update No. 2016-08, Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net).
62
See ASC 606-10-55-37A in the ASU.
63
See ASC 606-10-20 for the definitions of contract asset and contract liability.
64
For guidance on cost capitalization and impairment, see ASC 340-40-25 and ASC 340-40-35 as well as paragraphs 91 through 104 of IFRS 15.
65
ASC 210-20; IAS 1, Presentation of Financial Statements; and IAS 32, Financial Instruments: Presentation.
66
ASC 340-40-35-4; paragraph 102 of IFRS 15.
67
ASC 606-10-32-4 (paragraph 49 of IFRS 15) states, “For the purpose of determining the transaction price, an entity shall assume that the goods or services will be transferred to the customer as promised in accordance with the existing contract and that the contract will not be cancelled, renewed, or modified.”