With the beginning of the FASB/IASB Standards on Revenue Recognition (ASC 606/IFRS 15) rapidly approaching, the American Institute of CPAs (AICPA) issued a 157-page guide in January on how the new standard will affect the auditing and accounting process, and is now requesting feedback on five new working drafts of accounting issues pertaining to the implementation of the standard.
Industry Task Forces Hope to Address RevRec Challenges
Per AccountingWEB, the working drafts are the result of an ongoing effort by 16 industry task forces to compile implementation issues that will be added to a new AICPA revenue recognition guide.
As this standard changes the way accounting is done for a multitude of industries, the task forces are seeking opinion from industry leaders on possible implementation issues, and gauging the potential impact of new standards. With the standard’s effective date rapidly approaching, working drafts for each industry are being churned out by each task forces on specific topics, looking to address six key issues:
- The responsibilities of management, directors, and audit committees for reliable financial reporting.
- Key accounting guidance for whether and when revenue should be recognized in accordance with GAAP.
- The circumstances and transactions that may signal improper revenue recognition.
- Key aspects of the auditor’s responsibility to plan and perform an audit under Generally Accepted Auditing Standards.
- Procedures that auditors may find effective in limiting audit risk arising from improper revenue recognition.
- Audit challenges that may be incurred by revenue recognition changes.
Industry Issues Being Discussed
The following list, by no means comprehensive, shares some of the topics being discussed and the working groups discussing them:
|Industry Working Group||Issues|
|Aerospace and Defense||1-1 – Acceptable Measures of Progress
1-2 – Accounting for Contract Costs
1-3 – Variable Consideration and Constraining Estimates of Variable Consideration
1-4 – Contract Existence and Related Issues for Foreign Contracts with Regulatory Contingencies and Unfunded Portions of U.S. Government Contracts
1-5 – Transfer of control on non-USG contracts
1-6 – Identifying Performance Obligations
1-8 – Contract Modifications, Unpriced Change Order, Claims
1-12 – Significant Financing Component
1-14 – Accounting for Offset Obligations
1-16 – Allocating the Transaction Price
1-20 – Impact of Contract Termination Rights and Penalties on Contract Term
|Airlines||2-6c – Loyalty Tier Status
2-6f – Financing on Advance Mile Purchases
2-6h – Estimating Standalone Selling Price
2-8 – Accounting for Contract Costs – Commissions and Selling Costs
2-10 – Accounting for Passenger Taxes & Related Fees
|Asset Managers||10-1 – Who is the Customer
10-6 – Recognition of Contingent Deferred Sales Charges
10-7 – Deferred Distribution Commission Expenses (“back-end load funds”)
10-8 – Identifying the Contract
|Broker-Dealers||3-1 – Commission Income
3-1A – Commission Income – Trade Date vs. Settlement Date
3-3 – Principal vs. Agent: Costs Associated with Underwriting
3-3A – Costs Associated with Advisory Services
3-7 – Revenue from Financial Instruments (Out of Scope)
|Construction||4-1 – Identifying the Unit of Account (including combining contracts, loss of segmentation guidance, options, separate performance obligations)
4-2 – Variable Consideration / Estimation Method (including claims, change orders (unpriced and unapproved), incentives, penalties, extras, liquidated damages, back charges, collectability)
4-3 – Acceptable measures of progress (including when each measure is acceptable to use, Accounting for Service Contracts, Wasted Materials)
|Depository and Lending Institutions||5-4 – Sale of Non-Operating Assets (Other Real Estate Owned)|
|Gaming||6-1 – Definitions: The terms “Win” and Gross Gaming Revenue
6-2 – Net Gaming Revenue
6-3 – Promotional Allowances
6-8B – Loyalty Tier Status
6-10 – Accounting for Jackpot Insurance Premiums and Recoveries
6-11 – Accounting for Gaming Chips and Tokens
6-4 – Accounting for Base and Incremental Progressive Jackpots Amounts
|Healthcare||8-1 – Application of step 1 (determine if there is a contract) and step 3 (determine the transaction price) for healthcare services provided to self-pay patients, including uninsured patient balances and self-pay patient balances arising from co-payments and deductibles
8-2 – Application of the Portfolio Approach to Contracts with Patients
|Insurance||9-1 – Considerations for Applying the Scope Exception in FASB ASC 606-10-15-2 to Contracts within the Scope of ASC 944|
|Nonprofits||11-2 – Tuition and Housing Revenue
11-3 – Contributions
11-6 – Bifurcation of Transactions Between Contribution and Exchange Components
|Oil and Gas||Are Normal Purchase Normal Sales contracts in the scope of ASC 606
Financial Statement Presentation of Non-customer Revenue
Usefulness of ASC 606 Disclosures for Oil and Gas Producing Entities
|Power and Utilities||13-1 – Accounting for Tariff Sales to Regulated Customers|
|Software||14-1 – Determining Whether Software Intellectual Property is Distinct in Cloud Computing Arrangements (i.e., Hosting, Software-as-a-Service and Hybrid Software/SAAS)
14-2 – Determining Whether Components of Postcontract Customer Support (“PCS”) are Separate Performance Obligations Distinct from One Another, and the Associated Pattern in which an Entity Satisfies Each Performance Obligation
14-4a – Defining and Identifying Potential Price Concessions
14-4b – Estimating the Standalone Selling Price of Options that are Determined to be Performance Obligations
14-6 – Estimating the Standalone Selling Price
14-7 – Significant Financing Components in Software Arrangements
|Telecommunications||15-1 – Portfolio Accounting
15-2 – Identification of Separate Performance Obligations in the Contract
15-4 – Accounting for Contract Costs
15-9 – Step 4: Allocating the Transaction Price
15-12 – Disclosure & Transitional Issues
|Timeshare Entities||16-1 – Identify the Performance Obligations
16-6 – Management Fee Agreements
Many of the topics above are closed for discussion, but the commentary on each can help you to understand how the changes could impact companies like yours. Click on the industry to view the members of the working group and potential discussions on the horizon in each.
Get Prepared: Download the Guide to Preparing for ASC 606
Wipfli LLP/Brittenford Systems has drafted a guide for businesses looking to prepare for ASC 606/IFRS. The Guide to New Revenue Recognition Standards provides an overview of the standard and some of the necessary changes that need to be made to adopt the new standards.
For even more, look toward the Intacct Guides, Analyst Report: Intacct Leads the Way in ASC 606 and IFRS 15 Revenue Recognition, Six Rules for ASC 606 Readiness, and ASC 606 and Subscription Businesses—Why Compliance Can’t Wait