Determining transaction price and identifying performance obligations are among the most challenging implementation issues in accounting for revenue recognition, according to recent guidance from the Financial Accounting Standards Board (FASB).
FASB issued an implementation Q&A in January on revenue recognition under Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The Q&A does not add or change any guidance for applying the standard, but it is intended to make it easier for users to find and use the resources that are already available. This initiative is part of FASB’s ongoing commitment to educate stakeholders on how to understand and implement new accounting standards.
The Q&As in this document have been assembled from previously issued FASB memos and resources and Transition Resource Group (TRG) materials. The TRG was formed in 2014 and has been informing FASB about implementation issues since the standard came out. Several additional ASUs clarifying 606 implementation issues resulted from the TRG’s activities.
The Q&A document includes 81 questions and answers, categorized by subject. For ease of use, it compiles questions and answers into one format and location. If an issue was previously discussed in multiple memos, this Q&A consolidates them into one. Examples are provided throughout to illustrate how to apply the answers to common situations.
There are Q&As for each of the five steps in the new revenue recognition guidance: identifying the contract (five Q&As), identifying the performance obligations (13), determining the transaction price (19), allocating the transaction price to the performance obligations (two), and recognizing revenue (12).
There are also a significant number of Q&As (17) on contract costs incurred in obtaining or fulfilling contracts with customers under Accounting Standards Codification 340-40, which was added by ASU 2014-09. A number of these address the types of costs that should be capitalized and how they should be amortized.
The remainder of the Q&As in the document include a few each on scope issues, licensing and royalties, and contract presentation.
This document addresses only the revenue recognition guidance in FASB’s Codification, and it includes the related section numbers for reference. It does not include other related compliance requirements for ASC 606 that preparers must address in their financial statements.
FASB encourages users of this document to refer to the complete analysis of the issues described in this Q&A, along with other implementation resources that can be found on FASB’s website.