The New Revenue Recognition Standard — Analysis & Application I (Portfolio 5098)

Bloomberg BNA Tax and Accounting Portfolio 5098, The New Revenue Standard – Analysis & Application I , is designed to be used in conjunction with Accounting Policy & Practice Portfolio, The New Revenue Standard – Analysis & Application IITo access this Portfolio, visit Bloomberg Tax Financial Accounting Resource Center for a free trial. 

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This Portfolio is part of the Accounting Policy and Practice Series, an essential resource including more than 70 accounting Portfolios and the latest news and developments.


Bloomberg BNA Tax and Accounting Portfolio 5098, The New Revenue Standard – Analysis & Application I , is designed to be used in conjunction with Accounting Policy & Practice Portfolio, The New Revenue Standard – Analysis & Application II. Together, these Portfolios provide a detailed analysis of the new revenue recognition standard (ASU 2014-09 and IFRS 15). This portfolio discusses the history of the standard, the changes that have been made to the Codification, the scope of the standard, and the first three steps in the new revenue recognition model (identifying the contract, identifying performance obligations and determining transaction price). The Portfolio includes analysis of the new rules as well as the ongoing efforts of the TRG and the FASB and IASB to clarify issues that have arisen with respect to the new guidance. The Portfolio provides a comparison to current U.S. GAAP, when relevant, and discussion of the Boards' Basis for Conclusions. In addition, the Portfolio provides an overview of the new rules on accounting for incremental costs to obtain and costs to fulfill a contract with a customer.

Bloomberg BNA Tax and Accounting Portfolio 5099, The New Revenue Standard – Analysis & Application II, discusses the last two steps in the revenue recognition model (allocating transaction price and recognizing revenue when (or as) a performance obligation is satisfied). The Portfolio also includes detailed analysis of the new guidance on accounting for licenses and other special types of transactions, the guidance on accounting for costs in a contract with a customer, the presentation rules, the new disclosure requirements and the effective date and transition guidance. The Portfolio also includes guidance on preparing to implement the new standard.

This Portfolio may be cited as Bloomberg BNA Tax and Accounting Portfolio 5098, Rivera & Starczewski, The New Revenue Standard – Analysis & Application I.


Stephen Rivera, CPA

Stephen Rivera, Worldwide Senior Director of the Financial Compliance and Procedures Group at Johnson & Johnson's, joined the company in April 2005. He ensures J&J's worldwide accounting compliance in R&D collaborations, business combinations, and similar types of investments, while providing guidance in technical accounting and accounting policy issues. He also interfaces with J&J's external accountants on the issues of transactions that cross over the company's three major segments–Pharmaceutical, Medical Devices & Diagnostic, and Consumers. Prior to joining J&J, Steve began his career in public accounting with Coopers & Lybrand in 1984. In 1990, he joined General Public Utilities as manager of the accounting research department. He joined AT&T in 1993, which in 1994 spun off Lucent, where he was the Senior Manager of Financial Reporting. In 2000, he joined Aventis Pharmaceuticals as the Finance Director, responsible for US GAAP reporting and technical accounting issues. In 2004, he joined Dendrite International as the Assistant Corporate Controller, overseeing the accounting and reporting groups. He has always had a significant role interfacing with external accountants for accounting and reporting matters. Steve is also a frequent speaker on revenue recognition as he has been part of the Revenue Working Group created by CCR-FEI when the standard was first draft. Steve is also active in chairing the Accounting and Financial Reporting subcommittees of the PhRMA and Device industry groups and a member of CCR-FEI.

Lisa Marie Starczewski, J.D. Shareholder

Lisa Marie Starczewski, B.A., Shareholder, Buchanan, Ingersoll & Rooney; Villanova University School of Law; J.D. (magna cum laude), Smith College. Ms. Starczewski served as Editor-in-Chief of the Villanova Law Review (1987-88) and has practiced law with Morgan, Lewis & Bockius and Schnader, Harrison, Segal & Lewis. She has also taught at the Villanova University School of Law. Ms. Starczewski has coauthored, in addition to this work, several other Accounting Policy and Practice Portfolios: 5101, Revenue Recognition: Product Sales and Services; 5114, Accounting for Leases: Fundamental Principles. She has also authored numerous Tax Management Portfolios and Tax Practice Series Chapters (also published by Bloomberg BNA). She has received the Tax Management Distinguished Author Award and is a member of the Tax Management U.S. Income Advisory Board.

Table of Contents

Detailed Analysis
I. Understanding the New Approach
A. Issuance of the New Standard
B. Effective Date
C. The Transition Resource Group for Revenue Recognition (TRG)
D. Additional FASB/IASB Guidance
E. Convergence
F. Rules-Based vs. Principles-Based Accounting
G. Core Principle & Five Steps
1. Identify the Contract With a Customer
2. Identify the Performance Obligations in the Contract
3. Determine the Transaction Price
4. Allocate the Transaction Price to the Performance Obligations in the Contract
5. Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation
H. Scope of Portfolio
II. Changes to the Codification
A. Changes to Revenue Subtopics (the 600s)
B. Elimination of Industry-Specific Revenue Guidance
C. New Subtopics
1. ASC 606
2. ASC 610
a. ASC 610-10
b. ASC 610-20
c. ASC 610-30
d. ASC 340-40
e. ASC 705-20
f. ASC 940-720
g. ASC 946-720
h. ASC 974-720
D. Implementation Guidance - Illustrations
E. SEC Guidance on Revenue Recognition
III. ASC 606 – Scope
A. Application to Contracts With Customers
B. Exceptions to Application of Topic 606
C. Application to Real Estate Transactions
D. Application to Hybrid Contracts
E. Application of IFRS 15 to Islamic Financing Transactions
IV. Step One – Identifying the Contract
A. Definition of a “Contract”
1. Contract Criteria
2. Collectibility Criterion
3. Unilateral Enforceable Right to Terminate
a. Each Party has Unilateral Enforceable Right to Terminate
b. One Party Has Unilateral Enforceable Right to Terminate
4. Receipt of Consideration in Arrangement That Does Not Meet Contract Criteria
5. Reassessment of Existence of Contract
B. Definition of a “Customer”
1. Output of Entity's Ordinary Activities
2. Collaborative Arrangements
3. Transfers of Assets That Are Not an Output of an Entity's Ordinary Activities
C. Practical Expedient – Portfolio of Contracts or Performance Obligations
D. Combining Contracts
E. Contract Modifications
1. Definition of a Contract Modification
2. Accounting for a Contract Modification
3. Unpriced Change Orders & Contract Claims
4. Changes in Transaction Price After Modification
V. Step Two – Identifying Performance Obligations
A. What Is a Performance Obligation?
B. What Is a “Good or Service?”
C. When Is a Promised Good or Service Bundled With Other Promised Goods or Services?
D. When Is a Promised Good or Service (or Bundle of Goods or Services) Considered “Distinct?”
1. “Capable of Being Distinct” Criterion
2. “Distinct Within the Contract” Criterion
3. Transfer of a Series of Distinct Goods or Services
E. Shipping Terms
F. Principal vs. Agent Considerations
1. Determining Whether an Entity is Acting as a Principal or an Agent
2. Third Party Assumes Contractual Rights and Obligations
3. Illustrations
G. Application to Distribution Networks
H. Accounting for Warranties — When Is the Promised Warranty a Performance Obligation?
I. Accounting for Customer Options to Acquire Additional Goods or Services
1. When Is the Option a Performance Obligation?
2. Determining Standalone Selling Price for Option to Acquire Additional Goods or Services
3. Customer Exercise of a Material Right to Acquire Additional Goods or Services
VI. Step Three – Determining Transaction Price
A. Calculation of Transaction Price
B. Variable Consideration
1. Estimating Total Consideration
2. Applying the Constraint
a. General Application
b. Application to Sales and Usage-Based Royalties
c. Application of Constraint to Asset Managers Earning Performance-Based Incentive Fees
C. Amounts Billed to Customers
1. Shipping & Handling Fees and Reimbursements of Out-of-Pocket Expenses
2. Amounts Collected on Behalf of Third Parties
D. Noncash Consideration
E. Consideration Payable to a Customer
F. Estimating Gross Amount of Revenue When Acting as a Principal
G. Effect of Time Value of Money on Determining Transaction Price
1. Determining Whether Contract Contains a Significant Financing Component
2. Practical Expedient
3. Discount Rate
4. Accounting and Presentation of Effects of Financing
H. Sales With Right of Return
1. Exchange Rights
2. Warranties
3. Accounting for Restocking Fees & Related Costs

Working Papers

Worksheet 1 FASB and IASB Step Comparisons