REVENUE RECOGNITION

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Transcript REVENUE RECOGNITION

The Amended RR ED

– Part 7 Ashwinpaul (Tony) C. Sondhi President A. C. Sondhi & Associates, LLC

www.acsondhi.com

July 17, 2012



The Amended RR ED: Part 7

My objective in this webcast series is to discuss specific financial reporting risks to clarify industry specific issues relevant to financial statement preparers, auditors, and investors as the FASB and the IASB work to complete.

 The Comment period for the Amended RR ED ended March 13, 2012. I strongly encourage everyone to review the comment letters the Boards have received to date. See www.FASB.org

and www.IASB.org

for more information on and staff summaries of comment letters.

The Amended RR ED: Part 7

Revenue Recognition Meetings:  The FASB and the IASB hosted public roundtables in May 2012 on the amended revenue recognition proposals.

    Open to those who have submitted a comment letter, or intend to submit a comment letter.

The roundtables were held in London (UK), Norwalk(US), and Tokyo (Japan) as well as an additional roundtable for US private companies in May 2012.

The IASB hosted outreach meetings in March in Sao Paulo (Brazil) and Kuala Lumpur (Malaysia).

See www.fasb.org

and www.ifrs.org

for details.

Proposed Revenue ASU The Revenue Recognition Roadmap Principles: Step 1: Identify the contract(s) with the customer.

Step 2: Identify the separate performance obligations in the contract.

Step 3: Determine the Transaction Price.

Step 4: Allocate the Transaction Price.

Step 5: Recognize revenue when a performance obligation is satisfied.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Basic Principle – Paragraph 91: Where available, use existing guidance for costs incurred in fulfilling contracts.

See for example, Topic 330 350-40 software.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 91: An asset from the costs to fulfill a contract should be recognized only for costs that: a) Relate directly to a contract (or to a specific anticipated contract); b) Generate or enhance resources of the entity that will be use din satisfying performance obligations in the future; c) Are expected to be recovered.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 92 - Examples of Eligible Direct Costs:  Direct labor (e.g., salaries of employees providing services directly to customers),  Direct materials (e.g., supplies used to provide services to customers), 4/25/2020 Copyright 2012 A. C. Sondhi & Associates, LLC

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 92 - Examples of Eligible Direct Costs (Continued):  Allocated overhead costs directly related to the contract or contract activities (e.g., costs of contract management and supervision, insurance, and depreciation of tools and equipment used in fulfilling the contract) ,  Costs explicitly chargeable to the customer in accordance with contractual terms, and  Other costs incurred explicitly for the contract (for example, subcontractor costs).

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 93 - Examples of Costs that must be expensed as incurred:  Costs of delivered goods and services (related performance, that is, fully or partially satisfied obligations), to past  Abnormal (not reflected in the contract) fulfillment costs and waste, 4/25/2020 Copyright 2012 A. C. Sondhi & Associates, LLC

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 93 - Examples of Costs that must be expensed as incurred (Continued):  General and administrative costs (unless those costs are explicitly chargeable to the customer under the contract – apply paragraph 91), and  Costs related to remaining performance obligations that the entity cannot distinguish from costs that relate to satisfied performance obligations.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Incremental Costs of Obtaining a Contract (ICOC):  Paragraph 94: ICOC must be capitalized costs if the entity expects to recover those costs, subject to a practical expedient in paragraph 97;  Paragraph 97 (Practical Expedient): ICOC may be expensed if the amortization period for the asset would be one year or less.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Incremental Costs of Obtaining a Contract (ICOC):  Paragraph 95: ICOC costs include those that an entity would not have incurred if the contract had not been obtained (e.g., sales commissions).

 Paragraph 96: Costs that would have been incurred regardless of whether the contract was obtained must be expensed as incurred, unless they are explicitly chargeable to the customer regardless of whether the contract is obtained.

 Contract Costs: Proposed Revenue ASU Revised November, 2011 Amortization (Paragraphs 98 and 99): Capitalized costs (Paragraphs 91 or 94) must be amortized as related goods and services are delivered.

 The capitalized costs may include costs related to goods or services approved).

to be

transferred under a specifically identifiable anticipated contract (for example, services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been  The amortization should be updated to reflect significant changes in the expected pattern of transfer of goods or services and the changes should be accounted as a change in accounting estimate (Subtopic 250-10).

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraphs 100-103 - Impairment:  Paragraph 100 - Impairment losses must be recognized to the extent that the carrying amount of the deferred cost asset (paragraphs 91 and 94) exceeds:   The remaining amount of the consideration to which an entity expects to be entitled in exchange for goods or services to which the asset relates, less The paragraph 92 costs that relate directly to providing those goods or services.

Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraphs 100-103 - Impairment:  The amount the entity expects to be entitled is based on the principles for determining the transaction price.

 Paragraph 102 360 – Before recognizing impairments on paragraph 91 or 94 cost assets, an entity must recognize impairment losses based on other applicable guidance, for example, Topic 330 Inventory except for impairment losses of asset groups under Topic – PP&E, and Topic 350 – Goodwill and Other Intangibles.

–  Paragraph 103 be reversed.

Tony Sondhi’s Winter - Summer 2012 Seminar Schedule

Topic

Advanced Topics in Revenue Recognition

Advanced Topics in Software Revenue Recognition

Contracts

Dates

July 26 & 27

August 20 & 21

August

Location

San Jose, CA

Boston, MA

Raleigh, NC

4/25/2020

Please visit www.acsondhi.com

registration information.

or call 727-797-1515 for agenda and

Tony Sondhi’s Winter – Summer 2012 Seminar Schedule

Topic Revenue Recognition Dates August Location Boston, MA Software Revenue Recognition August San Jose, CA RR in Health Care and Bio-Tech Industries August San Francisco, CA

4/25/2020

Please visit www.acsondhi.com

registration information.

or call 727-797-1515 for agenda and

REVENUE RECOGNITION

Transcript REVENUE RECOGNITION

The Amended RR ED

The Amended RR ED: Part 7

The Amended RR ED: Part 7

Tony Sondhi’s Winter - Summer 2012 Seminar Schedule

Tony Sondhi’s Winter – Summer 2012 Seminar Schedule

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