Defining Issues | November 2016
 

FASB Revenue TRG holds last scheduled meeting

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KPMG reports on TRG ASC 606 implementation issues. FASB Revenue TRG discusses more ASC 606 implementation issues. No additional standard setting expected before ASC 606 effective date.

Applicability

FASB/IASB Joint Transition Resource Group for revenue recognition

  • ASC Topic 606 (new revenue standard)
  • Sales- or usage-based royalties with a minimum guarantee
  • Amortization of incremental costs of obtaining a contract
  • Nonrefundable up-front payments to customers
  • Revenue recognition for an asset with no alternative future use when there is an enforceable right to payment

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities and certain not-for-profit entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2018.

Interim periods:

For public business entities and certain not-for-profit entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.

Early adoption:

For public business entities and certain not-for-profit entities the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

For all other entites the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

Key impacts

  • For licenses of intellectual property (IP), determining the pattern of revenue recognition when there are sales- or usage-based royalties with a minimum guarantee will require judgment
  • The amortization period for incremental costs of obtaining a contract will extend beyond the initial contract term when there is a history of renewals, unless the commission paid on renewals is commensurate with the commission on the initial contract
  • Nonrefundable up-front payments to customers should be capitalized and amortized as a reduction of revenue over a longer period than the contract term, if the payment meets the definition of an asset and it is probable that it will be recovered through future cash flows from anticipated subsequent contracts
  • Over-time revenue recognition is required for many manufacturers of customized tangible products and other entities when specific criteria are met, even if they currently recognize revenue when the products are delivered
  • No additional standard setting expected before the ASC Topic 606 effective date other than the technical corrections already in progress

Report contents

  • Sale- or usage-based royalties
  • Incremental costs of obtaining a contract
  • Up-front payments to customers
  • Over-time revenue recognition

 

 

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