Identifying a sale-leaseback transaction. criterion; however, the Basis for Conclusions indicates that a company could conclude a contract has been terminated when it stops providing goods or services to the customer, and therefore it is unlikely that the treatment under ASC 606 and IFRS 15 will be different. Background . The FASB explained in the Basis for Conclusions of ASU 2014 09 158 that control from ACCTG masters at Golden Gate University Financial reporting developments — Gains and Losses : [, a , • The , ASC 610 … ASC 606-10-55-284 through 55-286 provides an example of entries that would be recorded when an entity has an unconditional right to consideration in advance of performance. In the Background Information and Basis for Conclusions of ASU 2014-09,3 the FASB explained that it created ASC 610-20 because of the . Preceding ASC 605 general industry practice for revenue recognition was directed by the AICPA Define “separately identifiable” and add examples to the standard’s Basis for Conclusions. Accordingly, the views we express in this publication may continue to evolve as implementation continues and additional issues are identified. This may include cu stomer options to acquire additional free or discounted goods; warranties; or non-refundable, up-fron t fees. The FASB noted in the Basis for Conclusions of ASU 2014-09 108 that consideration can be variable even when the stated price in the contract is fixed. ASC 610-20 was created at the same time as ASC 6062 and was later amended by Accounting Standards Update (ASU) 2017-05, which clarified its scope and application. Accordingly, t he views we express in this publication may continue to evolve as implementation continues and additional issues are identified. Disclaimer The information included in this presentation is for general information only. Paragraph BC271 in the basis of conclusions for ASU 2016-02 indicates that amount recognized in the income statement should be presented within income from continuing operations. The nature of our promise depends on whether we control the content prior to transferring it as explained in ASC 606-10-55-36A and paragraph BC 11 of the Basis for Conclusions to ASU 2016-08, Revenue from Contracts with Customers — Principal versus Agent Considerations. Reframe the criteria in ASC 606-10-25-21 (i.e., the “separately identifiable” criteria) to focus on the bundle of goods or services instead of individual goods or services. FASB ASC 606 requires an entity to identify the distinct goods or services promised in a contract. Accordingly, entities should ensure that revenue recognition is ultimately consistent with the substance of the arrangement. Any advice or information provided by Anchin, Block & Anchin LLP (“Anchin”)in the course of the presentation is based on a … This can lead to different conclusions on the need for a deferred tax asset or liability based on why financial statement revenue is earlier. However, the Basis for Conclusions of ASU 2014-09 indicates that transactions with participants in a collaborative arrangement can be within the scope of ASC 606 if the counterparty meets the definition of a customer under some or all of an arrangement’s terms. A full range of insights on the leases standard are available on our website , including: Leases: How will it impact you? It relates to, but does not form part of, ISA 530 (Redrafted), “Audit Sampling,” which was approved by the IAASB in June 2008. 1. By now, you've probably already heard of the term ASC 606 but have no idea exactly how it will affect you or your employees. However, ASC 606-10-65-1(i) does require, in the year of adoption, entities applying the modified retrospective method to disclose the impact of changes to financial statement line items as a result of applying ASC 606 in the initial period of adoption and include an explanation of the reasons for any significant changes. Upstream oil and gas entities should also keep in mind that, when they adopt the new credit … (ASC) section 606, which are normally referred to simply as ASC 606. DISCLOSURE OBJECTIVE 1 ASC 842-20-50-2 and ASC 842-30-50-2 2 ASU 2016-02 Background Information and Basis for Conclusions, paragraph BC 276 3 ASC 842-30-50-5 Please explain to us in greater detail the nature and terms of such contracts and provide us with the basis for your accounting conclusions under ASC 606 and under legacy US GAAP. Well, the ASC 606 revenue recognition standard, also known as the IFRS 15 is quite the hot topic. Each distinct good or service should be accounted for separately. Over Time Revenue Recognition. ASC section 606-10-32-29 states that an entity should allocate the transaction price to each performance obligation identified in the contract on the relative basis of the obligations’ stand-alone selling prices. Topic 606 specifies five criteria for contract existence. This Basis for Conclusions has been prepared by staff of the International Auditing and Assurance Standards Board (IAASB). In many cases, under current Generally Accepted Accounting Principles (“GAAP”), contract assets and liabilities would have been recorded as unbilled receivables and deferred revenue. However, investment income and some other forms of revenue outside the scope of ASC 606 are also included in the revised definition of output in the new guidance. for any shortfall. Since the issuance of the original standards in 2014, both the FASB and IASB issued amendments. On June 3, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. The guidance in Topic 606 must be adopted by public companies for fiscal years beginning after December 15, 2017, and by private companies one year later. While many entities have adopted the standard, implementation issues may continue to arise. In ASC 606 paragraph BC92, the Basis for Conclusions (BC) refers to a promise to a “customer’s customer” and does not limit that to parties within the distribution chain. (ASC 606-10-55-91) The FASB noted in the Basis for Conclusions (BC) that “the most useful disaggregation of revenue depends on various entity-specific or industry-specific factors,” and decided each entity must determine which characteristics best meet the goal of disaggregating revenues (BC336). Therefore, the Board decided to incorporate into the definition of output other types of revenues. The FASB specifies in the Basis for Conclusions (BC352c) of ASC 2016-02 that real estate assets will never qualify as substantially the same because, although assets may have similar characteristics, no two pieces of property would ever occupy the same location, and would, therefore, not be substantially the same. [FASB’s conclusions can be drawn from the “Background Information and Basis for Conclusions” issued with ASU 2014-09, Revenue from Contracts with Customers (Topic 606); the conclusions cited here and below are drawn from that source.] Therefore, if the sales contract with the third party is considered a customer contract, revenue on those sales would be recognized in accordance with ASC 606. Please explain to us in greater detail the nature and terms of such contracts and provide us with the basis for your accounting conclusions under ASC 606 and under legacy US GAAP. 2020-05, which grants a one-year effective date delay for certain companies and organizations applying the revenue recognition (ASC 606) and leases (ASC 842) guidance. A follow-up set of amendments to ASC 606 in ASU 2016-11 eliminated this SEC guidance. ... but these conclusions should be analyzed under the new framework; Companies can elect to present sales taxes on a net basis or they can perform a jurisdictional analysis, which may result in some taxes being presented gross and others net ; Report contents. Identify performance obligations recognition of either a contract asset or liability (ASC 606-10-45-1). While the new standards (ASC 606 and IFRS 15) include a number of specific factors to consider, they are principles–based standards. scope. criteria to recognize revenue for sales on a bill-and-hold basis under ASC 606 have changed – most notably, there is no longer a requirement for the arrangement to have a fixed delivery schedule. clarified in an amendment to ASC 606 that companies should consider, as part of the collectibility assessment, their ability to mitigate their exposure to credit risk, for example by ceasing to provide goods or services in the event of nonpayment. In its basis for conclusions, the FASB acknowledged the adverse effect the COVID-19 pandemic is having on … (Topic 606 or ASC 606). Revenue Recognition ASC Topic 606 Tuesday, December 17, 2019 Presented by: Dan Shea, CPA –Quality Control Partner Chris Noble, CPA –Technology Industry Group Leader. Assume an entity manufactures a custom machine that qualifies for over time revenue recognition under ASC Topic 606. This change narrows the definition to be consistent with ASC 606, which, as noted in the ASU’s Basis for Conclusions, “describes goods or services that are an output of the entity’s ordinary activities.” However, not every entity has revenues within the scope of ASC 606. The first four criteria—approval and commitment of the parties, identification of … KPMG’s insights on industry ASC 606 implementation. What makes it so relevant is the way it will eventually transform how companies go to market—in every industry. discussed in ASC 606, Revenue from Contracts with Customers, that is, goods or services provided to customers. Midstream oil and gas entities should also keep in mind that, when they adopt the new credit … The following summarizes two of the illustrative examples in the Blue Book. ASC 606 applies to all customer contracts, except for those within the scope of other standards, e.g., insurance contracts, financing arrangements and financial instruments. 2. This ASU introduces a new comprehensive model for revenue recognition, which will replace virtually all of the previously existing revenue recognition guidance in U.S. GAAP. We believe that presentation as either lease expense or interest expense may be appropriate, depending on the nature of the lease. As defined previously, the stand-alone price is the price at which the entity would sell a promised good or service separately to a customer. These new standards replaced ASC 605 which had been in effect since 2009. 1 When we control the content, our promise is to provide access to it and revenue is presented gross. This is because the entity may be entitled to consideration only upon the occurrence or nonoccurrence of a future event. While many entities have adopted the standard, implementation issues may continue to arise. When we … Under the … Section C—Background Information and Basis for Conclusions. (ASC 606), and should be read in conjunction with it. 1. 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