The New Revenue Recognition Standard — Analysis & Application II (Portfolio 5099)

Bloomberg BNA Tax and Accounting Portfolio 5099, The New Revenue Standard – Analysis & Application II, is designed to be used in conjunction with Accounting Policy & Practice Portfolio, The New Revenue Standard – Analysis & Application I. To access this Portfolio, visit Bloomberg Tax Financial Accounting Resource Center for a free trial.

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Bloomberg BNA Tax and Accounting Portfolio 5099, The New Revenue Standard – Analysis & Application II, is designed to be used in conjunction with Accounting Policy & Practice Portfolio, The New Revenue Standard – Analysis & Application I. Together, these Portfolios provide a detailed analysis of the new revenue recognition standard (ASU 2014-09 and IFRS 15).

Bloomberg BNA Tax and Accounting Portfolio 5099, The New Revenue Standard – Analysis & Application II includes an introduction to the new approach and a detailed discussion of the last two steps in the new 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 in the new guidance, the new disclosure requirements and the effective date and transition guidance. The Portfolio also includes guidance on preparing for implementation of the new standard. 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.

Bloomberg BNA Tax and Accounting Portfolio 5098, The New Revenue Standard – Analysis & Application I discusses the history of the new 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).

This Portfolio may be cited as Bloomberg BNA Tax and Accounting Portfolio 5099, Rivera & Starczewski, The New Revenue Standard – Analysis & Application II.


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.

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. 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
F. Scope of Portfolio
II. Step Four – Allocating Transaction Price
A. Relative Standalone Selling Price
B. Estimation Methods
1. Adjusted Market Assessment Approach
2. Expected Cost Plus a Margin Approach
3. Residual Approach
C. Application of the New Rules to Multiple-Element Software Arrangements
D. Allocating a Discount
E. Allocating Variable Consideration
F. Changes in Transaction Price
III. Step Five – Recognizing Revenue When (or as) a Performance Obligation Is Satisfied
A. Transfer of Control
B. Definition of Control
C. Determining Whether a Performance Obligation Is Satisfied Over Time
1. Simultaneous Receipt and Consumption
2. Asset that Customer Controls
3. No Alternative Use and Right to Payment
a. Assessing Alternative Use
b. Contractual Restrictions
c. Practical Limitations
d. Enforceable Right to Payment
(1) Amount of the Payment
(2) Enforceability of Payment
(3) Effect of Payment Schedule in Contract
D. Measuring Progress Toward Completion
1. Output Methods
2. Input Methods
3. “Right to Invoice” Practical Expedient
E. Accounting for Customer's Unexercised Rights – “Breakage”
F. Accounting for Nonrefundable Upfront fees
G. Performance Obligations Satisfied at a Point in Time
1. Repurchase Agreements
a. Forwards & Call Options
b. Put Options
2. Consignment
3. Bill-and-Hold Arrangements
4. Customer Acceptance
H. Partial Satisfaction of Performance Obligations Prior to Identifying the Contract
1. Recognizing Revenue
2. Accounting for Fulfillment Costs
IV. Applying the New Guidance to Licenses
A. Overview
B. Is the License “Distinct”?
C. Nature of Promise to Grant a License
D. Attributes of Single License Versus Multiple Licenses
1. Renewals of Right-to-Use (Point in Time) Licenses
2. Restrictions in Right-to-Use (Point-in Time) IP Licenses
E. Application of Contract Modification Guidance to Licenses
F. Variable Consideration
G. Illustrations
V. Accounting for Contract Costs Under the New Guidance
A. ASC 340-40
B. Examples
VI. Presentation Rules
VII. Disclosure Requirements
Introductory Material
A. ASC 606
1. Disclosure Requirements
2. Disaggregation of Revenue
B. ASC 340
C. Requirement to Disclose Future Impact of New Revenue Standard
D. Regulation S-K – Changes in Internal Controls
VIII. Effective Date & Transition Guidance
A. Effective Date
1. Public Entities
2. Nonpublic Entities
B. Transition
1. Full Retrospective Approach
2. Modified Retrospective Approach
3. Practical Expedient – Contract Modifications
4. 5-Year Table
IX. Preparing for Application of New Standard

Working Papers

Worksheet 1 FASB and IASB Comparison