Helping You Tackle ASC 606

One Step At A Time

General Overview

Overview of ASC 606

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Collaboration between FASB and IASB resulted in ASC 606. Filers have choice between Full Retrospective and Modified Retrospective Adoption methods.

The Five-Step Method

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Summary of each of the five steps of ASC 606 and key issues entities need to consider when completing each step.

Transition Dates and Methods

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Stay up-to-date on an entity’s required ASC 606 transition date and its most beneficial transition method, which varies based on entity type and industry.

STEP 1 - IDENTIFY THE CONTRACT

Combining Contracts

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Analysis and examples of the criteria for determining if contracts entered into with a customer at or near the same time must be combined for revenue recognition.

Collectibility of Consideration

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Analysis of the collectability requirement of ASC 606, including accounting for contract’s with initial and subsequent collectability issues.

Contract Modifications
Part I – Separate Contracts

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Analysis of changes in the price or scope of a contract and whether they qualify as modifications and should be treated as a separate, standalone contract.

Contract Modifications
Part II – Contract Modification Treatment

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If a contract modification is not considered a separate contract, entities use the Prospective Treatment method or Cumulative Catch-up Adjustment method.

Contract Modifications
Part III – The Hindsight Expedient

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The FASB and IASB provide a practical expedient on contract modification adjustment – the use of hindsight to account for all changes at once.

Definition of a Customer

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Analysis of the updated definition of a customer in ASC 606’s scope considerations, including examples of common transactions in a business context.

Scope & Interaction with Other Guidance

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Analysis of the scope considerations of ASC 606 and how ASC 606 interacts with other guidance, including an example of a transaction with mixed guidance.

Step 1: Identify the Contract

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The first step of ASC 606 is to identify the contract with a customer. ASC 606 outlines many criteria, including legal enforceability and collectability.

STEP 2 - PERFORMANCE OBLIGATIONS

Distinct Goods or Services: Case Studies

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Three extended examples demonstrating the analyses for determining if goods or services are (1) capable of being distinct and (2) separately identifiable.

Customer Options for Additional Goods or Services

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Analysis and examples of how ASC 606 treats future discounts given to customers in a current sale, including diversity in thought and comparison to ASC 605.

Distinct within the Context of the Contract

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Analysis and examples of the new criteria under ASC 606 for identifying separate performance obligations as “distinct within the context of the contract”.

Identifying Promised Goods & Services

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Identify promised goods and services by analyzing customer perspective, immateriality, implicit promises, setup activities, and marketing incentives.

Principal/Agent Considerations
(Gross vs Net)

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Description and examples of how ASC 606 determines principle vs agent considerations, including new criteria for determination and diversity in thought.

Series of Distinct Goods or Services

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Analysis and multiple examples of ASC 606’s two requirements for treating multiple distinct goods or services as one performance obligation (a series).

Stand-Ready Obligations

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Analysis and common examples of how ASC 606 treats stand-ready obligations as potential performance obligations, including diversity in thought.

STEP 3 - TRANSACTION PRICE

Consideration Payable to a Customer

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Analysis of ASC 606’s treatment of payments paid to customers, including the payment types and the timing of recognizing a reduction in revenue.

Magnitude of the Constraint on Revenue

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Analysis and examples of ASC 606’s requirement to constrain variable consideration based upon likelihood and magnitude, including diversity in thought.

Noncash Consideration

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Determine the transaction price of a contract with noncash consideration under ASC 606, including when and how to measure variable fair value.

Nonrefundable Upfront Fees

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Analysis of revenue recognition for nonrefundable upfront fees under ASC 606, including when fees relate to specific goods or services and material rights.

Price Concessions

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Analysis of price concessions based on the customer’s expectation and the specific facts and circumstances of the transaction, examples are included.

Rights of Return and Customer Acceptance

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Depending on the type, a right of return may be a variable consideration under ASC 606.

Significant Financing Component

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Analysis of financing components for payments made before or after goods or services are delivered under ASC 606.

Variable Consideration and the Constraint

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Analysis and example of estimating variable consideration and applying the constraint under ASC 606.

Volume Discounts

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Analysis of ASC 606’s approach for estimating the transaction price of a contract with possible discounts for future volume purchases or discount vouchers.

STEP 4 - ALLOCATE REVENUE

Allocating Discounts

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Allocating variable and fixed discounts to the transaction price under ASC 606, includes significant changes from ASC 605 to ASC 606.

Allocating Variable Consideration

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Analysis and illustrative examples of the two criteria given in ASC 606 for allocating variable consideration to performance obligations.

Case Study: Estimating Standalone Selling Prices

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An extended example of applying the adjusted market assessment, expected cost plus margin, and residual approaches in estimating standalone selling prices.

Case Study: Transaction Price Allocation

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A comprehensive example of how transaction price is allocated to performance obligations, including cases involving variable considerations and discounts.

Standalone Selling Prices

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Analysis of ASC 606’s three methods for estimating standalone selling prices and how to allocate allocate the transaction price to performance obligations.

STEP 5 - RECOGNIZE REVENUE

Measuring Progress with Multiple Goods or Services in a Single Performance Obligation

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Analysis of step five of ASC 606’s model when a single performance obligation has multiple non-distinct promises, including restrictions, principles, and examples.

Bill-and-Hold Arrangements

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ASC 606’s four criteria for determining bill-and-hold arrangements and when these arrangements contains one or more performance obligations.

Case Study: Revenue Recognition Over Time for Products

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An extended example applying ASC 606’s three criteria for recognizing revenue over time to goods and measuring revenue over time using inputs or outputs.

Consignment Arrangements

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Explanation and examples of the indicators that a consignment arrangement exists, including comparison to ASC 605.

Determining the Transfer of Control

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Criteria for revenue recognition at a point in time, including situations such as bill-and-hold, and consignments.

Input vs. Output Methods

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Explanation of the input and output methods used to recognize revenue over time in ASC 606.

Partially Satisfied Performance Obligations at Contract Inception

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ASC 606’s treatment of revenue and costs from activities performed before the contract establishment date that relate to an anticipated contract.

Repurchase Agreements

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ASC 606’s treatment of repurchase agreements, including forwards and call options and put options. Examples are included

Revenue Recognition Over Time

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Description of the three criteria in ASC 606 for determine whether revenue is recognized over time. Illustrative examples of each criterion are included.

Rights of Return and Customer Acceptance

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Depending on the type, a right of return may be a variable consideration under ASC 606.

Unexercised Rights

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Examples and explanation of how revenue should be allocated to performance obligations when breakage is involved.

Case Studies

Minimum Guarantee on Sales- and Usage-based Royalties Case Study

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The licensing of intellectual property (IP) is a common practice in the media and entertainment industry. For example, popular media companies such as Disney, Sony, and DreamWorks own thousands of valuable trademarks, logos, character images, etc. that can be licensed…

SmokeyMan LO: Virtual Goods Case Study

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In today’s virtual gaming world, many games across multiple platforms allow players to access their virtual environment for free while in-game purchases of various virtual currencies and goods allow players to enhance gameplay. Popular freemium games such as Candy Crush,…

Case Study: Volume-Based Tiered Pricing Structure

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Many companies structure their contracts using “tiered pricing” contingent on future events; this means that the fee per event decreases as the number of events increases. Examples include hours of processing time, number of social media posts, clicks on a…

Case Study: The Crucial Role of Stakeholders and the TRG in Updating ASC 606

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Explore the process of continued improvement to ASC 606 as stakeholders raise concerns, questions, and implementation issues to the TRG.

Case Study: Software-as-a-Service (SaaS)

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A comprehensive analysis of the five-step process of ASC 606 applied to a common Software-as-a-Service fact pattern.

Case Study: Software and Postcontract Customer Support (PCS)

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Software revenue recognition may change under ASC 606, especially when distinct elements of PCS are determined to be separate performance obligations.

Case Study: Revenue Recognition Over Time for Products

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An extended example applying ASC 606’s three criteria for recognizing revenue over time to goods and measuring revenue over time using inputs or outputs.

Case Study: Estimating Standalone Selling Prices

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An extended example of applying the adjusted market assessment, expected cost plus margin, and residual approaches in estimating standalone selling prices.

Case Study: Transaction Price Allocation

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A comprehensive example of how transaction price is allocated to performance obligations, including cases involving variable considerations and discounts.

Other Issues

PwC Revenue Recognition Survey and SAB 74 Disclosure Guidance

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Key findings of PwC’s Revenue Recognition Survey and guidance on using this interactive tool. Expectations and best practices for SAB 74 Disclosures.

Licenses for Intellectual Property

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Description and examples of revenue recognition for licenses of intellectual property under ASC 606, including determining license nature and timing of recognition.

SEC Makes TRG Discussions Authoritative

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Statements made by Chief Accountant of the SEC imply a more authoritative role for the Revenue Recognition TRG; this may have unintended consequences.

Comment Letter to Proposed Amendments

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FASB Comment Letter on proposed amendments to ASU Topic 606 regarding narrow-scope improvements and practical expedients.

Completed Contracts at Transition

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For transitional purposes, the determination of whether contracts are completed or incomplete under the full or modified retrospective methods.

Contract vs. Portfolio Method

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Analysis and illustrative examples of the three criteria an entity must meet to apply the portfolio method as a practical expedient.

Costs to Fulfill a Contract

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Analysis of ASC 606’s treatment of contract fulfillment costs, including scope considerations, the capitalization criteria, amortization, and impairment.

Disclosures

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Description of ASC 606’s disclosure requirements regarding contracts with customers, significant judgments involved, and contract cost related assets.

Incremental Costs of Obtaining a Contract

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Analysis of incremental costs under ASC 606, including identifying the incremental costs, the criteria for capitalization, and how to amortize these costs.

Installation and Implementation Services

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Analysis of the three factors for determining separate performance obligations and assessing the timing of revenue recognition

Presentation of Contract Assets and Contract Liabilities

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Analysis and examples of contract assets and liabilities under ASC 606, including the balance sheet presentation and the impacts of rights to payment.

Sales- and Usage-Based Royalties

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ASC 606’s exception criteria for sales- and usage-based royalties, including the process for recognizing revenue for these exceptions.

Warranty Obligations

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Analysis and an illustrative example of the two types of warranties under ASC 606 and the three factors used to distinguish between these types.