Proposed ASUs Related to FASB ASU 2014-09

Proposed Revisions to FASB ASU 606 – Narrow-Scope Improvements and Practical Expedients

On September 30, 2015, the FASB released a proposed accounting standards update to FASB ASC 606, Revenue from Contracts with Customers, providing additional clarification to certain narrow aspects of ASC 606. Comments on the proposed update, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, are due by November 15, 2015, after which the Board will make a final decision on any revisions necessary to FASB ASC 606.

The amendments in this proposed update would not change the core principle of the guidance in FASB ASC 606. Rather, the amendments in this proposed update would affect only the narrow aspects of FASB ASC 606 outlined in the proposed update.

The Board decided to add a project to its technical agenda to improve Topic 606 to address those issues by reducing:

  1. The risk of diversity in practice arising from inconsistent application of the principal versus agent guidance
  2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
The amendments in this proposed Update would affect entities with transactions included within the scope of FASB ASC 606.

The effective date and transition requirements for the amendments in this proposed Update would be the same as the effective date and transition requirements in FASB ASC 606.

Proposed Revisions to FASB ASU 606 – Identifying Performance Obligations and Licensing

On August 31, 2015, the FASB released a proposed accounting standards update to FASB ASC 606,
Revenue from Contracts with Customers, providing additional clarification related to identifying performance obligations and licensing. Comments on the proposed update, Revenue from Contracts with Customers (Topic 606): Principal versus Agent (Reporting Revenue Gross versus Net), are due by October 15, 2015, after which the Board will make a final decision on any revisions necessary to FASB ASC 606.

Discussions at TRG meetings informed the Board about implementation issues related to the implementation guidance on principal versus agent guidance considerations, including:

  1. Identifying the unit of account at which an entity should assess whether it is a principal or an agent
  2. Identifying the nature of the good or the service provided to the customer (for example, whether it is a good, a service, or a right to a good or service)
  3. Applying the control principle to certain types of transactions, such as service arrangements
  4. Interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation.

The Board decided to add a project to its technical agenda to improve Topic 606 to address those issues by reducing:

  1. The risk of diversity in practice arising from inconsistent application of the principal versus agent guidance
  2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
The amendments in this proposed Update would affect entities with transactions included within the scope of FASB ASC 606.

The effective date and transition requirements for the amendments in this proposed Update would be the same as the effective date and transition requirements in FASB ASC 606.

Proposed Revisions to FASB ASU 606 – Identifying Performance Obligations and Licensing

On May 12, 2015, the FASB released a proposed accounting standards update to FASB ASC 606,
Revenue from Contracts with Customers, providing additional clarification related to identifying performance obligations and licensing. Comments on the proposed update, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, were due by June 30, 2015.

Implementation questions submitted to the Transition Resource Group (TRG) and discussions at TRG meetings informed the FASB about a few issues in the guidance on identifying performance obligations and licensing. Those issues include:

1. Identifying Performance Obligations:

a. When identifying performance obligations, whether it is necessary to identify and evaluate promised goods or services that are immaterial
b. Determining whether promised goods and services are separately identifiable (that is, distinct within the context of the contract)
c. Determining whether shipping and handling activities are a promised service in a contract or are activities to fulfill an entity’s other promises in the contract.
2. Licensing:
a. Determining whether the nature of an entity’s promise in granting a license is to provide a right to access the entity’s intellectual property, which is satisfied over time and for which revenue is recognized over time, or to provide a right to use the entity’s intellectual property, which is satisfied at a point in time and for which revenue is recognized at a point in time
b. The scope and applicability of the guidance about when to recognize revenue for sales-based or usage-based royalties promised in exchange for a license of intellectual property
c. Whether restrictions of time, geographical region, or use on a license of intellectual property affect the identification of performance obligations.

The Board decided to add a project to its technical agenda to improve FASB ASC 606 to address those issues by reducing:

1. The risk of diversity in practice arising before the guidance is effective 2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.

The amendments in this proposed Update are being issued by the FASB. The IASB decided that it would perform additional research and outreach before deciding whether any specific amendments are warranted.

The effective date and transition requirements for the amendments in this proposed Update would be the same as the effective date and transition requirements in FASB ASC 606.