Revenue Recognition. Renee Rampulla
number of suggested improvements to FASB ASC 606 were brought to FASB’s attention; as a result, this ASU was issued to provide very narrow clarification for the following specific situations:
Loan guarantee fees: The ASU clarifies that guarantee fees are within the scope of FASB ASC 460, Guarantees (other than product or service warranties), and not within the scope of FASB ASC 606, and that entities should refer to the guidance in FASB ASC 815, Derivatives and Hedging, for guarantees that are accounted for a derivative.
Contract costs impairment testing: This clarification addresses impairment testing of costs capitalized in accordance FASB ASC 340-40 and explains that when performing impairment testing, an entity shouldconsider the expected contract renewals and extensions, andinclude both the amount of consideration it has already received but has not yet recognized as revenue and the amount it expects to receive in the future.
Contract costs—Interaction of impairment testing with other guidance in other FASB ASC topics: This clarification explains that impairment testing first should be performed on assets not within the scope of FASB ASC 340, Other Assets and Deferred Costs; FASB ASC 350, Intangibles—Goodwill and Other; or FASB ASC 360, Property, Plant, and Equipment (such as FASB ASC 330, Inventory), then assets within the scope of FASB ASC 340, then asset groups and reporting units within the scope of FASB ASC 360 and FASB ASC 350.
Provisions for losses on construction-type and production-type contracts: This ASU requires that the provision for losses on construction-type and production-type contracts be determined at least at the contract level and that an entity would be allowed to make an accounting policy election to determine the provision for losses at the performance obligation level.
Scope of FASB ASC 606: Removed the term “insurance” from the scope exception of FASB ASC 944, Financial Services—Insurance, to clarify that all contracts within the scope of FASB ASC 944 are excluded from the scope of FASB ASC 944. This was done to in order to exclude other types of contracts in FASB ASC 944, such as investment contracts that do not subject an insurance company to insurance risk.
Disclosure of remaining performance obligations: This ASU provides optional exemptions from the disclosure for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. If an entity elects this option, additional disclosure requirements apply.
Disclosure of prior-period performance obligations: This ASU clarifies that the disclosure of prior period performance obligations applies to all performance obligations, with or without corresponding contract balances.
Contract modification example: Example 7 of FASB ASC 606 was amended to better align with the principles of FASB ASC 606.
Contract asset versus receivable: Example 38, Case B was updated to better link the analysis in the example to the receivable presentation guidance in FASB ASC 606.
Refund liability: This ASU removed reference to the term “contract liability” from the journal entry in example 40 of FASB ASC 606.
Advertising costs: This change describes how entities that previously capitalized advertising costs in accordance with FASB ASC 340-20 would now apply the capitalization guidance in FASB ASC 340-40.
Fixed-odds wagering contracts in a casino industry: This ASU created a new FASB ASC 924-815, which excludes fixed-odds wagering contracts from its scope, and therefore fixed-odds wagering contracts in a casino industry are within the scope of FASB ASC 606.
Any changes brought about by the issuance of this ASU correspond to the applicable existing transition and effective dates of ASU No. 2014-09.
ASU No. 2017-10, Service concession arrangements (Topic 853): Determining the customer of the operation services (a consensus of the FASB Emerging Issues Task Force)
This ASU addresses service concession arrangements and specifically states that an operating entity shall account for revenue from service concession arrangements in accordance with FASB ASC 605 on revenue recognition or FASB ASC 606 on revenue from contracts with customers, as applicable. When applying FASB ASC 605 or FASB ASC 606, an operating entity shall consider the grantor to be the customer of its operation services in all cases for service concession arrangements within the scope of FASB ASC 853, Service Concession Arrangements. Any changes brought about by the issuance of this ASU correspond to the applicable effective dates of ASU No. 2014-09.
ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the scope and the accounting guidance for contributions received and contributions made
This ASU revised the scope and scope exception of FASB ASC 606 by stating that an entity shall consider the guidance in FASB ASC 958-605 when determining whether a transaction is a contribution within the scope of FASB ASC 958-605 or a transaction within the scope of FASB ASC 606.
Any changes brought about by the issuance of this ASU, relating to FASB ASC 606, correspond to the applicable effective dates of ASU No. 2014-09.
ASU No. 2018-18, Collaborative arrangements (Topic 808): Clarifying the interaction between Topic 808 and Topic 606
This ASU clarifies when certain transactions between collaborative arrangement participants should be accounted for under FASB ASC 606. Specifically, when the collaborative arrangement participant is a customer in the context of a unit of account.
Consider reviewing and adopting the guidance in FASB ASC 606 directly from the guidance residing in FASB ASC instead of reviewing each individual related ASU because the codification complies all of the applicable guidance.
Scope and scope exceptions
Within the scope of FASB ASC 606
FASB ASC 606 applies to any entity that enters into a contract with a customer to transfer goods or services, including the transfer of nonfinancial assets that are not within the scope of other authoritative guidance. The scope of FASB ASC 606 is very broad; entities may find that some parts of a contract with a customer are within the scope of FASB ASC 606 and other parts fall within the scope of other FASB ASC topics.
Not-for-profit entities
An entity will need to consider the guidance in FASB ASC 958-605 on not-for-profit entities—revenue recognition—contributions when determining whether a transaction is a contribution within the scope of FASB ASC 958-605 or a transaction within the scope of FASB ASC 606.
Collaborative arrangements
An entity shall apply the guidance in FASB ASC 606 to a contract (other than those contracts outside the scope of FASB ASC 606), only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
Contracts partially within the scope of FASB ASC 606
A contract with a customer may be partially within the scope of FASB ASC 606 and partially within the scope of other FASB ASC topics. When this occurs,
if the other FASB ASC topic specify how to separate and measure one or more parts of the contract, apply that guidance first. An entity should exclude from the transaction price the amount of the part (or parts) of the contract that are initially measured in accordance with other FASB ASC topics and allocate to other parts of the contract the amount of the transaction price that remains (if any) to each performance obligation within the scope of FASB ASC 606.
if the other FASB ASC topics do not specify how to separate and initially measure one