Revenue Recognition. Renee Rampulla
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Название: Revenue Recognition
Автор: Renee Rampulla
Издательство: John Wiley & Sons Limited
Жанр: Бухучет, налогообложение, аудит
isbn: 9781119763925
isbn:
Contract with a customer
Able Company entered into a written agreement with its customer Hanson Inc. to lease a copy machine for a period of three years, provide maintenance services on the copy machine, and supply the customer with toner and paper during the same three-year period.
Assessment
The revenue Able Company receives from the leasing of the copy machine to Hanson Inc. is within the scope of FASB ASC 840 (or 842, when effective), whereas the revenue received from both the maintenance services and the monthly supply of toner and paper are clearly within the scope of FASB ASC 606.
The core five principles
FASB ASC 606 provides a principle-based framework by introducing core principles that an entity should apply in order to recognize revenue. Keep in mind that these core principles have replaced all industryspecific revenue recognition guidance, unless that guidance is specifically scoped out of the new standard. This is significantly different from the way in which many entities have recognized revenue in the past, which is why FASB has stated that the new revenue recognition standard is the most significant change to accounting; only second to FASB ASC. In order to recognize revenue, an entity should apply the following five steps (core principles):
Identify the contract(s) with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the performance obligations in the contract.
Recognize revenue when (or as) the entity satisfies a performance obligation.
In addition to these five-steps for recognizing revenue, ASU No. 2014-09 also addresses the following select areas:
Accounting for incremental costs of obtaining a contract, as well as costs incurred to fulfill a contract
Licenses
Warranties
FASB ASC 606 has the potential to affect every entity’s day-to-day accounting and, possibly, the way business is executed through contracts with customers. Therefore, entities need to consider all aspects of their contracts with customers and not just the recording of a transaction into the general ledger.
Knowledge check
1 In order to achieve its core principles, how many steps are described in FASB ASU No. 2014-09?Two.Three.Four.Five.
2 FASB ASC 606 provides a principle-based framework by introducing core principles that an entity should apply in order to recognize revenue. Which item is not being within the scope of FASB ASC 606?Software and technology.Motion pictures, music, and other forms of media and entertainment.Franchises.Insurance contracts.
Effective dates
The original effective dates of FASB ASU No. 2014-09 was revised by the issuance of the following ASUs:
FASB ASU No. 2015-14
FASB ASU No. 2017-13
As a result of these ASUs, the revised effective dates for FASB ASC 606 are as follows:
For public entities, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017 (meaning January 1, 2018, for calendar year-end entities), including interim periods within that reporting period. Early application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
For nonpublic entities, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Nonpublic entities may elect to adopt ASU No. 2014-09 earlier, only as of either of the following:An annual reporting period beginning after December 15, 2016, including interim periods within that reporting periodAn annual reporting period beginning after December 15, 2016, and interim reporting periods within annual periods beginning one year after the annual reporting period in which an entity first applied ASU No. 2014-09
For certain public business entities, ASU No. 2017-13 explains that the SEC staff has stated that they would not object to a public business entity using the non-public entity’s effectives providing the public business entity would not otherwise meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC.
The new revenue recognition standard describes a variety of effective dates. When considering the effective date exception in FASB ASU No. 2017-13, sometimes identifying whether an entity is within the definition of a public entity may not be very clear. See below for additional information from the FASB ASC master glossary:
“A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.
It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing СКАЧАТЬ