Brief Overview of the New FASB-IASB Revenue Recognition Standard

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Revenue from Contracts With Customers, FASB Codification Topic 606 Overview

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  • 5/19/2018 Brief Overview of the New FASB-IASB Revenue Recognition Standard

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    INCOMING! BRIEF OVERVIEW

    OF THE NEW FASB-IASBREVENUE RECOGNITION

    STANDARDKurt S. Schulzke, JD, CPA, CFE

    Associate Professor of Accounting & Business Law

    Coles College of Business

    October 2014

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    NEW ASC TOPIC 606

    Copyright Kurt S Schulzke 2014

    ASC =AccountingStandardsCodification

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    TOPIC 606ALLEGED (BUTUNPROVEN) PRINCIPLE

    Copyright Kurt S Schulzke 2014

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    ASC SUBTOPIC 606-10-25-2

    Copyright Kurt S Schulzke 2014

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    BNAS TOP TEN Industry guidance replaced by legal

    opinion & professional judgment

    Topic 606 applies across the board &

    requires expanded disclosure Transfer of control through satisfaction of

    performance obligations is key

    One contract may encompass more thanone performance obligation

    Collectibility is a scope or contractexistence question, not a measurementquestion

    THINGS TO WORRY A New rules require recognition of estimated

    consideration if it is probable that subsechanges in the estimate will not require re

    Changes to accounting for long-term con

    Accounting for license revenue has chan

    Allocation of transaction price to performobligations on the basis of stand-alone seno more VSOE of FV

    Effective dates

    Copyright Kurt S Schulzke 2014

    Good high-levelsummary of thestandard but onlypoints to lurkingcontract law questions

    http://www.bna.com/fasb-iasb-issued-m17179891012/
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    BNAS

    HIGH-LEVEL T606 FLOWCH

    Copyright Kurt S Schulzke 2014

    http://www.bna.com/fasb-iasb-issued-m17179891012/
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    ITS ALL ABOUT CONTRACT LAWHTTP://BIT.LY/1SVAZFU

    Copyright Kurt S Schulzke 2014

    Deeper dicontract la

    Topic 606,great flow606 revenrecognitio

    http://bit.ly/1sVAZFuhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://bit.ly/1sVAZFu
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    ASC Topic 606

    SIDE-BY

    COMP

    Copyright Kurt S Schulzke 2014

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    Purported contract w/

    customer

    STEP 1

    Review purported contract

    for legal enforceability

    and existence

    (ED paras. 13 & 15)

    Pass ED

    paras. 13 & 15

    tests?

    Enforceability & existence

    A. identify governing law & forum

    (para. 13);

    B. verify contract formation & validity

    (para. 13);

    C. verify contract enforceability

    (para. 13); and

    D. for wholly executory contracts,

    verify that at least one party lacks the

    enforceable right to unilaterally

    terminate without penalty (para. 15)

    Para. 14 scope criteria

    A. commercial substance/effect on future

    cash flows;

    B. parties approve and are committed to

    perform;

    C. identification of parties' rights to goods/

    services; andD. identification of payment terms

    Figure 1

    ED/2011/6 Revenue Recognition

    Stage 1 - ContractAnalysis

    STEP 2Verify contract is within

    scope (ED para. 14)

    Pass ED

    para. 14 tests?

    Do not recognize

    revenue

    No

    Yes

    No

    Yes

    Go to Measurement &

    Recognition Module(Fig. 2)

    Stage 1Contract Analysis

    Copyright Kurt S Schulzke 2014

    http://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdf
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    CONTRACT EXISTENCE& ENFORCEABILITY

    Copyright Kurt S Schulzke 2014

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    CONTRACT SCOPECRITERIA

    Copyright Kurt S Schulzke 2014

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    LEISENRINGSLAMENT

    Copyright Kurt S Schulzke 2014

    In onlaw

    jur

    docuuncin sta

    Henry Rees,

    IASBs project

    manager

    James

    Leisenring,

    IASB Member

    then

    representing

    the U.S.

    Figure 2

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    Begin Recognition &

    Measurement Module

    (a) Identify separate

    performance obligations

    in the contract

    ED paras. 23-30

    (b) Determine the

    transaction price

    ED paras. 50-69

    (c) Allocate transaction

    price to performanceobligations

    ED paras. 70-80

    (d) Test for satisfaction

    of performance

    obligation throughtransfer of good or

    service to customer by

    shifting contro l

    Recognize Revenue

    Indicators of customer control

    ED paras. 31-48

    1. customers unconditional obligation to pay for the good

    or service;2. shift of risks and rewards of ownership of goods; or

    3. shift in legal title to or physical possession of the goods

    Does the customer

    control the good or

    service?

    Yes

    No

    Figure 2

    ED/2011/6 Revenue Recognition

    Stage 2Recognition & Measurement

    Do not recognize

    revenue

    Customer must

    have the present

    right to obtain

    substantially all of

    the cash flows

    from the asset by

    using, consuming,

    selling,

    exchanging,

    pledging or holdingit.

    ED paras. 31-32.

    Transaction price =

    expected value or

    most likely amount

    of consideration to

    be received. ED

    paras. 52-55

    Stage 2

    Recognition &Measurement

    Copyright Kurt S Schulzke 2014

    http://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdfhttp://www.vanderbilt.edu/jotl/manage/wp-content/uploads/schulzke.pdf
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    TRANSACTION PRICEEXPECTEDVALUE OR NOT?

    Copyright Kurt S Schulzke 2014

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    VARIABLE CONSIDERATION

    Copyright Kurt S Schulzke 2014

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    FILLING GAPS WITH PRIOR GUIDANCE

    Copyright Kurt S Schulzke 2014

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    DISCLOSUREDISAGGREGATIONREQUIRED

    Copyright Kurt S Schulzke 2014

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    DISCLOSURE EXAMPLERISK-BASEDDISAGGREGATION (ASC TOPIC 606-10-65-1)

    An entity reports the following segments: consumer products, transportation, anaccordance with Topic 280 on segment reporting. When the entity prepares itspresentations, it disaggregates revenue into primary geographical markets, malines, and timing of revenue recognition (that is, goods transferred at a point inservices transferred over time).

    The entity determines that the categories used in the investor presentations canmeet the objective of the disaggregation disclosure requirement in paragraphwhich is to disaggregate revenue from contracts with customers into categoriedepict how the nature, amount, timing, and uncertainty of revenue and cash affected by economic factors. The following table illustrates the disaggregatioby primary geographical market, major product line, and timing of revenue recincluding a reconciliation of how the disaggregated revenue ties in with the coproducts, transportation, and energy segments in accordance with paragraph

    6.

    Copyright Kurt S Schulzke 2014

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    DISCLOSURE EXAMPLERISK-BASEDDISAGGREGATION (ASC TOPIC 606-10-65-1)

    Copyright Kurt S Schulzke 2014

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    PRESENTER

    Kurt S. Schulzke, J.D., CPA, CFE

    Associate Professor of

    Accounting & Business Law

    Coles College of BusinessKennesaw State University

    Phone: 770.423.6379

    kurt_schulzke@kennesaw.edu

    Kurt Schulzkeis an Associate Professor of Accounting at KennesawState University and Of Cournsel at Slappey & Sadd, LLC, where herepresents whistleblowers in SEC, IRS and False Claims Act cases.

    He delivers seminars on financial reporting, corporate governance,corporate ethics, and family business in major U.S., European andLatin American venues. Kurt is an alumnus of the Harvard Program oNegotiations Teaching Negotiation in the Organizationand theJohannes-Kepler Universitaet - Georgia State University Law SchoolProgram on International Commercial Arbitration .

    Prior to joining the Coles College faculty in 1990, Kurt worked for fouryears as an auditor and tax consultant at Price Waterhouse - AtlantaHe has been licensed as a CPA since 1987 and as a member of theGeorgia State Bar since 1998. He has served family-owned businesseas a board member, CFO and general counsel. He holds a J.D. from

    Georgia State Universitys College of Law, cum laude, as well as B.S.and M.Acc. degrees from Brigham Young University. He is author ofWorld Accounting, a multi-volume Lexis-Nexis treatise on globalfinancial reporting, and has published articles on accounting andlegal topics in the Journal of Forensic Accounting Vanderbilt Journaof Transnational Law.

    Copyright Kurt S Schulzke 2014

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