Handbook: Revenue recognition - KPMG

Revenue recognition

Handbook

US GAAP December 2019 _____ us/frv

Contents

Foreword...................................................................................................... 1 About this publication .................................................................................. 2 1. Executive summary ............................................................................... 4 2. Scope..................................................................................................... 12 3. Step 1: Identify the contract(s) with a customer................................... 52 4. Step 2: Identify the performance obligations in the contract................ 121 5. Step 3: Determine the transaction price ............................................... 214 6. Step 4: Allocate the transaction price to performance obligations ....... 358 7. Step 5: Recognize revenue when (or as) the entity satisfies a

performance obligation.......................................................................... 445 8. Customer options for additional goods or services............................... 553 9. Principal vs. agent ................................................................................. 599 10. Licensing of intellectual property .......................................................... 660 11. Contract modifications .......................................................................... 764 12. Contract costs ....................................................................................... 821 13. Loss contracts ....................................................................................... 879 14. Presentation .......................................................................................... 895 15. Disclosure.............................................................................................. 918 16. Effective date and transition.................................................................. 981 Appendices .................................................................................................. 1065

Index of Q&As ....................................................................................... 1065 Index of examples ................................................................................. 1093 KPMG Financial Reporting View .................................................................. 1105 Acknowledgments ....................................................................................... 1106

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Revenue recognition

1

Foreword

A challenging standard

The new revenue standard was issued in 2014, and the 2018 and 2019 application dates once seemed a long way off. Now, as 2019 nears an end, public companies have adopted the new standard and the adoption for private companies is here, right now.

By this stage it is clear that the implementation of Topic 606 is not a simple exercise ? the standard leaves behind legacy US GAAP and introduces a new framework for analyzing transactions. It requires more judgment and estimation, and new disclosures.

KPMG's Accounting Change Survey highlighted that companies expect many areas of their business to be affected. The key areas identified included increased disclosures, accounting policies and procedures, systems and processes, internal controls, customer contracting practices, tax and human resources.

In this publication, we focus on the accounting and disclosure aspects of the new standard. Questions continue to arise and the interpretation of the principles in the standard is evolving. Many companies are seeing the standard as an opportunity to relook at revenue streams, and the processes and controls surrounding revenue accounting.

Our purpose in this updated book is to assist you in gaining an in-depth understanding of the new, five-step, revenue model by answering the questions that we are encountering in practice, providing examples to explain key concepts, and explaining the changes from legacy US GAAP.

Brian Allen and Prabhakar Kalavacherla Department of Professional Practice, KPMG LLP

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Revenue recognition

2

About this publication

About this publication

The purpose of this Handbook is to assist you in understanding the new revenue standard, Topic 606, which was issued in May 2014.

Accounting literature

Unless otherwise stated, references to the revenue standard and/or Topic 606 comprise all of the following Accounting Standards Updates issued prior to Topic 606's mandatory adoption date:

-- No. 2014-09, Revenue from Contracts with Customers (Topic 606)

-- No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

-- No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

-- No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting

-- No. 2016-12, Revenue from Contracts with Customers (Topic 606): NarrowScope Improvements and Practical Expedients

-- No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

-- No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments

-- No. 2017-14, Income Statement--Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403

Organization of the text

Each chapter of this Handbook includes excerpts from the FASB's Accounting Standards Codification? and overviews of the relevant requirements. Our indepth guidance is explained through Q&As that reflect the questions we are encountering in practice. We include examples to explain key concepts, and we explain the changes from legacy US GAAP.

Our commentary is referenced to the Codification and to other literature, where applicable. The following are examples:

-- 606-10-25-16 is paragraph 25-16 of ASC Subtopic 606-10.

-- ASU 2014-09.BC87 is paragraph 87 of the basis for conclusions to Accounting Standards Update No. 2014-09.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Revenue recognition

3

About this publication

-- TRG 01-15.16 is agenda paper no. 16 from the meeting of the IASB and the FASB's Joint Transition Resource Group for Revenue Recognition (TRG) held in January 2015.

-- SAB Topic 11.M is SEC Staff Accounting Bulletin Topic 11.M.

-- 2007 AICPA Conf is the 2007 AICPA National Conference on Current SEC and PCAOB Developments. These references are hyperlinked to the source material on the SEC's website.

-- IFRS 15.C3(a) is paragraph 3(a) of Appendix C of International Financial Reporting Standard (IFRS) 15. References to IFRS are included only in chapter 16.

Pending content

In some cases, the Codification is subject to content that becomes effective after the revenue standard. For example, Accounting Standards Update No. 2016-13, Financial Instruments--Credit Losses (Topic 326), includes consequential amendments to Topic 606.

When an excerpt from the Codification is affected by pending content:

-- the specific sentences that have been superseded are underlined; and -- the amended sentences are included at the end of the excerpt, marked as

pending content.

The transition dates for pending content are shown based on their general applicability to public entities (P) and non-public entities (N). See the relevant Topic to determine the specific transition requirements and whether a public entity may qualify to adopt the pending content at the non-public entity date.

December 2019 edition

This version of our Handbook includes new and updated interpretations based on our experiences with companies implementing Topic 606, as well as discussions with the FASB and SEC staff.

New Questions and Examples are identified throughout the Handbook with ** and items that have been significantly updated or revised are identified with #.

Abbreviations

The following is a list of the less common abbreviations used in this Handbook:

IP

Intellectual property

MSA

Master services agreement

PCS

Post-contract support

SaaS

Software-as-a-service

TRG

The IASB and the FASB's Joint Transition Resource Group for

Revenue Recognition

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download