Original air date: Dec. 4, 2017 Rebroadcast and recording info at http://www.mhmcpa.com As the effective date for changes to revenue recognition quickly approaches, are you aware of what new information will be required to be included in financial statement disclosures? In this webinar, we will discuss pre-adoption disclosure and the disclosure requirements contained in ASC Topic 606 Revenue from Contracts with Customers. Join us as we walk through examples from public companies that have early adopted to illustrate key parts of these requirements.

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CBIZ & MHM
Executive Education Series™
Critical Disclosures: New Revenue
Recognition Requirements
Mark Winiarski and Pieter Combrink
December 4, 2017; December 14 , 2017 (rebroadcast)

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About Us
• Together, CBIZ & MHM are a Top Ten accounting provider
• Offices in most major markets
• Tax, audit and attest and advisory services
• Over 2,900 professionals nationwide
A member of Kreston International
A global network of independent
accounting firms
MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting,
tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms.

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Disclaimer
The information in this Executive Education Series
course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further
discuss the impact on your business.

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Presenters
Located in our Kansas City office, Mark is a member of our Professional
Standards Group (PSG). Mark's role includes instructing in our national
training program, presenting as a subject matter expert at webinars and
conferences, and preparing MHM publications on accounting and
auditing issues.
As a PSG member, Mark consults with clients and engagement teams
across the country in many areas of accounting and auditing. Mark has
served clients as an auditor, consultant and advisor in numerous
industries including manufacturing, distribution, mining, retail sales,
services and software.
816.945.5614 • mwiniarski@cbiz.com • @KCWini
MARK WINIARSKI, CPA
MHM Shareholder

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Presenters
Pieter Combrink is a Senior Manager in the Attest Services Group of
MHM. He was with the firm from 2005 through 2010, and again
rejoined the firm in 2014, after gaining valuable experience as Senior
Manager at a Fortune 500 company in the Computer Software industry
in San Diego.
Pieter is a subject matter expert in Revenue Recognition, including
revenue from software, software-as-a-service (SaaS), multiple element
arrangements, gross vs. net arrangements, retail, et al. His technical
expertise includes revenue recognition consulting, accounting for equity
and liability financial instruments, and providing audit and review
services of financial statements for multi-national publicly as well as
non-publicly held companies.
Pieter’s industry experience includes working with software and SaaS
developers, technology and life science companies, telecommunication
service providers, manufacturers and research and development
companies.
858.232.8681 • pcombrink@cbiz.com
PIETER COMBRINK, CA(SA)
Senior Manager, CBIZ MHM, LLC

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Agenda
Big Picture
02
01
04
Into the Weeds
Pre-Adoption Disclosure05
03 Example
Adoption Disclosure

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BIG PICTURE

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Topic 606 Disclosure Objective
Disclose sufficient information about revenues and cash flows
to enable users of financial statements to understand:
• nature,
• amount,
• timing, and
• uncertainty
Requires judgment-based mindset

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What to Disclose
• Qualitative and quantitative information about:
• Revenues (Contracts with customers)
• Judgements (in applying Topic 606)
• Assets recognized from costs to obtain/fulfill a contract
Represents a drastic expansion compared
to previous requirements

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INTO THE WEEDS

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Contracts with Customers - Disaggregation
• Presented separately from any other sources of revenue.
• Disaggregated to best depict how the nature, amount, timing, and
uncertainty of revenues and cash flows are affected by economic
factors.
• Depends on facts and circumstances; >1 category not required.
• Consider how the portfolios (revenue streams) align with the
disaggregated disclosure.

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Disaggregation – Example (segment disclosure)
• Pre-adoption
Describe relationship between disaggregated revenue and
revenue reported at segment level if needed
• Post-adoption

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Contract with Customers - Balances
• Contract where only one of the parties have performed, results
in Contract Asset or Contract Liability.
• Contract Liability – customer pays prior to satisfaction of
performance obligation. Recognize liability that is released to
revenue once obligations are completed.
• Contract Asset – entity satisfies performance obligation with
contingency on right to payment, other than passing of time.
• Separate from Accounts Receivable, until contingency is removed.
• Disclose opening and closing balances of contract assets,
liabilities and accounts receivable from contracts with customers,
as well as revenue recognized from opening contract liabilities.

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Contract with Customers - Balances
• Qualitative and/or quantitative information on how timing of
satisfying performance obligations relates to timing of
payment and the effect of those factors on contract balances.
• Describe changes in the contract balances due to significant
events, such as business combinations, cumulative catch-up
adjustments to revenue, impairment of a contract asset, a
change in timing for realization of a contract asset or liability.
Provide sufficient relevant information to set
users’ expectations regarding revenue.

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Topic 606 Disclosures – Contracts with Customers – 1st Private
Company Relief
• Has election to not disclose full Disaggregation and Contract
Balance details previously discussed.
• At minimum:
• Revenue disaggregated according to the timing of transfer of
goods or services (e.g. point in time vs. over time)
• Qualitative information how economic factors affect the nature,
amount, timing, and uncertainty of revenue and cash flows
• Opening and closing balances of receivables, contract assets, and
contract liabilities from contracts with customers, if not already
separately reported.

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Contracts with Customers - Performance Obligations
• Description of when the entity typically satisfies its performance
obligations
• upon shipment, upon delivery, as services are rendered, or upon
completion of service, etc.
• Significant payment terms
• when payment typically is due, significant financing component,
variable consideration, etc.
• Nature of the goods or services
• Obligations for returns, refunds, and, types of warranties and
related obligations, etc.
Include revenue recognized from performance
obligations satisfied in a prior period.

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Contracts with Customers - Performance Obligations
• Transaction price allocated to remaining performance
obligations at end of reporting period.
• Include quantitative or qualitative explanation of when the entity
expects to recognize the related revenue.
• Not required for contracts that have an original expected duration
of one year or less or that apply the value-based invoicing
practical expedient
Stays true to judgement-based approach

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Significant Judgments
• Amount and timing of revenue:
• Timing of satisfaction of performance obligations,
• Determining the transaction price, and,
• Amounts allocated to performance obligations.
• Performance obligations satisfied over time:
• Input/Output methods used to measure progress
• Why the methods used represent faithful depiction of transfer.
• Performance obligations satisfied at a point in time:
• Judgments made to determine when a customer obtains control.

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Significant Judgments
• Methods, inputs, and assumptions used to:
• Determine the transaction price, including estimating variable
consideration,
• Allocating the transaction price in an arrangement, and
• Measuring obligations for returns and refunds.
Not all applicable to all entities

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Significant Judgments – 2nd Private Company Relief
• Most non-public entities can elect not to disclose the
following related to significant judgments:
• For performance obligations satisfied over time, the
explanation of why the methods used represent faithful
depiction of transfer.
• For performance obligations satisfied at a point in time,
judgments made to determine when a customer obtains
control.
• Judgments regarding transaction price.

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Assets from Costs to Fulfill
• If applicable, publically traded entities should disclose
information about capitalized costs, including
• Amount and a description of the costs capitalized,
• Amortization method and amount of amortization.

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EXAMPLE

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Topic 606 Post-Adoption Disclosures - Examples
Advertising Revenues
We generate revenues primarily by delivering advertising on Google properties and Google
Network Members’ properties.
Google properties revenues consist primarily of advertising revenues generated on Google.com,
the Google app, YouTube, and other Google owned and operated properties like Gmail, Google
Maps, and Google Play.
Google Network Members’ properties revenues consist primarily of advertising revenues
generated from placing ads on Google Network Members’ properties.
Our customers generally purchase advertising inventory through AdWords, DoubleClick Bid
Manager, and DoubleClick AdExchange, among others.
Most of our customers pay us on a cost-per-click basis (CPC), which means that an advertiser pays
us only when a user clicks on an ad on Google properties or Google Network Members'
properties or views certain YouTube ad formats like TrueView. For these customers, we recognize
revenue each time a user clicks on the ad or when a user views the ad for a specified period of
time.
We also offer advertising on other bases such as cost-per-impression (CPM), which means an
advertiser pays us based on the number of times their ads are displayed on Google properties
and Google Network Members’ properties. For these customers, we recognize revenue each
time an ad is displayed.

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Topic 606 Post-Adoption Disclosures - Examples
Advertising Revenues Cont’d
Certain customers may receive cash-based incentives or credits, which are accounted for as
variable consideration. We estimate these amounts based on the expected amount to be
provided to customers and reduce revenues recognized. We believe that there will not be
significant changes to our estimates of variable consideration.
For ads placed on Google Network Members’ properties, we evaluate whether we are the
principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis).
Generally, we report advertising revenues for ads placed on Google Network Members’
properties on a gross basis, that is, the amounts billed to our customers are recorded as
revenues, and amounts paid to publishers are recorded as cost of revenues. We are the principal
because we control the advertising inventory before it is transferred to our customers. Our
control is evidenced by our sole ability to monetize the advertising inventory, being primarily
responsible to our customers, having discretion in establishing pricing, or a combination of
these.
Other Revenues
Google other revenues and Other Bets revenues consist primarily of revenues from:
- Apps, in-app purchases, and digital content in the Google Play store;
- Hardware;
- Google Cloud offerings; and
- Other miscellaneous products and services.

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Topic 606 Post-Adoption Disclosures - Examples
Other Revenues Cont’d
As it relates to Google other revenues, the most significant judgment is determining whether we
are the principal or agent for app sales and in-app purchases through the Google Play store. We
report revenues from these transactions on a net basis because our performance obligation is to
facilitate a transaction between app developers and end users, for which we earn a commission.
Consequently, the portion of the gross amount billed to end users that is remitted to app
developers is not reflected as revenues.
Arrangements with Multiple Performance Obligations
Our contracts with customers may include multiple performance obligations. For such
arrangements, we allocate revenue to each performance obligation based on its relative
standalone selling price. We generally determine standalone selling prices based on the prices
charged to customers or using expected cost plus margin.

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Topic 606 Post-Adoption Disclosures - Examples
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our
performance, including amounts which are refundable. The increase in the deferred
revenue balance for the three months ended March 31, 2017 is primarily driven by cash
payments received or due in advance of satisfying our performance obligations, offset by
$414 million of revenues recognized that were included in the deferred revenue balance at
the beginning of the period. Our payment terms vary by the type and location of our
customer and the products or services offered. The term between invoicing and when
payment is due is not significant. For certain products or services and customer types, we
require payment before the products or services are delivered to the customer.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period
would have been one year or less. These costs are recorded within sales and marketing
expenses.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with
an original expected length of one year or less and (ii) contracts for which we recognize
revenue at the amount to which we have the right to invoice for services performed.

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ADOPTION DISCLOSURES

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Topic 606 - Effective Date and Transition
• Effective dates:
• Public Business Entities: Effective calendar year December
31, 2018, including interim periods within fiscal years
• All others: Effective for calendar year December 31, 2019
• Transition options:
• Full retrospective: to each prior reporting period presented
• Modified retrospective: with the cumulative effect
adjustment recognized at the date of initial application

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Adoption – Full Retrospective Method
• Applied as if in effect since the inception of all
contracts with customers that would have affected
the financial statements if accounted for under the
new standard.
• Practical expedients apply, including:
• Scope out contracts started and completed in the same
annual reporting period
• Use hindsight for to determine variable consideration.
• Apply expedients consistently; disclose expedients
used as well as quantified effects to extent possible.

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Adoption – Presentation Considerations
• Full Retrospective Approach:
• Expect entities to report prior year balance sheets, audited
under legacy guidance included in interim filings after
adoption of ASC 606, as “unaudited” or “as adjusted” on the
face of the financials with Topic 606 applied.
• A footnote disclosure would then show how the audited
balance sheet was impacted by the adoption of 606 that is
now reported as “unaudited” or “as adjusted”.
• Re-audit the prior year balance sheet(s) AND income
statement(s) impacted by the adoption of Topic 606, in
order to report those as audited on the face of the financial
statements.
• Modified Retrospective, similar approach, insofar
beginning retained earnings is impacted by the adoption.

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Full Retrospective Example
Recently Adopted Accounting Pronouncements
We early adopted the requirements of the new standard as of February 1, 2017,
utilizing the full retrospective method of transition. Adoption of the new standard
resulted in changes to our accounting policies for revenue recognition, trade and
other receivables, and deferred commissions as detailed below. We applied the
new standard using a practical expedient where the consideration allocated to the
remaining performance obligations or an explanation of when we expect to
recognize that amount as revenue for all reporting periods presented before the
date of the initial application is not disclosed.
The impact of adopting the new standard on our fiscal 2017 and fiscal 2016
revenues is not material. The primary impact of adopting the new standard
relates to the deferral of incremental commission costs of obtaining
subscription contracts. Under Topic 605, we deferred only direct and incremental
commission costs to obtain a contract and amortized those costs over the term of
the related subscription contract, which was generally between three and five
years. Under the new standard, we defer all incremental commission costs to
obtain the contract. We amortize these costs over a period of benefit that we
have determined to be five years.

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Topic 606 – Post-Adoption Disclosure Examples
We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASU No.
2014-09 and ASU No. 2016-18. Select condensed consolidated balance sheet line items, which reflect the adoption of the new
ASU's are as follows (in thousands):

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Topic 606 – Post-Adoption Disclosure Examples

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Adoption – Modified Retrospective Method
• Topic 606 applied to most current period presented in the
financial statements.
• Recognize the cumulative effect of initially applying the
standard as an adjustment to the opening balance of retained
earnings.
• Elect to apply this guidance retrospectively, either
• To all contracts at the date of initial application, or
• Only to contracts that are not completed contracts at the date of
initial application
• Disclose if applied to all contracts or only those that are not
completed before the date of initial application.

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Adoption – Modified Retrospective Method
• Under the modified retrospective method, an entity will:
• Present comparative periods under legacy GAAP
• Apply the new revenue standard to new and existing contracts
• Recognize a cumulative catch-up adjustment to the opening
balance of retained earnings
• In the year of adoption, disclose the amount by which each
financial statement line item was affected in the current year as
a result of applying the new standard and an explanation of
significant changes.

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Topic 606 Post-Adoption Disclosures - Examples
We adopted Topic 606 as of January 1, 2017 using the modified
retrospective transition method. See Note 2 for further details.
On January 1, 2017, we adopted Topic 606 using the modified
retrospective method applied to those contracts which were not
completed as of January 1, 2017. Results for reporting periods
beginning after January 1, 2017 are presented under Topic 606, while
prior period amounts are not adjusted and continue to be reported in
accordance with our historic accounting under Topic 605.
We recorded a net reduction to opening retained earnings of $15
million as of January 1, 2017 due to the cumulative impact of adopting
Topic 606, with the impact primarily related to our non-advertising
revenues. The impact to revenues for the quarter ended March 31,
2017 was an increase of $14 million as a result of applying Topic 606.

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PRE-ADOPTION DISCLOSURES

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Topic 606 Disclosures – Pre-adoption Disclosures
• SEC expects pre-adoption disclosures to help users of
financial statements understand progress in assessing the
impact of the adoption of Topic 606.
• Pre-adoption disclosures should encompass the following
quantitative and qualitative aspects:
• Description of impact
• Expected changes in accounting policies
• Adoption method, if determined
• Status of assessment including aspects not yet addressed, if
applicable
• Quantitative impact, unless not reasonably estimable

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Topic 606 Pre-Adoption Disclosures - Examples
Recently issued accounting pronouncements not yet adopted
We intend to early adopt Topic 606 as of January 1, 2017, using the
modified retrospective transition method applied to those contracts
which were not completed as of that date. Upon adoption, we will
recognize the cumulative effect of adopting this guidance as an
adjustment to our opening balance of retained earnings. Prior periods
will not be retrospectively adjusted. We expect the adoption of Topic
606 will not have a material impact to our consolidated financial
statements, including the presentation of revenues in our Consolidated
Statements of Income.

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Topic 606 Pre-Adoption Disclosures - Examples
Recently Issued Accounting Pronouncements
We have closely assessed the new standard and monitored FASB activity,
including the interpretations by the FASB Transition Resource Group for Revenue
Recognition, throughout fiscal 2017. In the fourth quarter of fiscal 2017, we
finalized our assessment of the new standard, including completing our contract
reviews and our evaluation of the incremental costs of obtaining a contract.
Based on our assessment, we decided to early adopt the requirements of the
new standard in the first quarter of fiscal 2018, utilizing the full retrospective
method of transition.
The impact of adopting the new standard on our fiscal 2017 and fiscal 2016
revenues is not material. The primary impact of adopting the new standard
relates to the deferral of incremental commission costs of obtaining subscription
contracts. Under Topic 605, we deferred only direct and incremental commission
costs to obtain a contract and amortized those costs over the term of the related
subscription contract, which was generally three years. Under the new standard,
we defer all incremental commission costs to obtain the contract. We amortize
these costs over a period of benefit that we have determined to be five years.

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Topic 606 Pre-Adoption Disclosures - Examples

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QUESTIONS

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If You Enjoyed This Webinar…
Upcoming Courses:
• 12/6 & 12/13: Opportunities to Offset Payroll Tax Liabilities with Research and
Experimentation Credit
• 12/7: Individual Year-End Tax Planning Tips for 2017 and Beyond
• 12/14: Tax Considerations for Debt-Financed Distributions from Partnerships
Owned By Private Equity
• 12/20: AICPA Conference on Current SEC and PCAOB Developments Debrief
• 12/21 & 12/28: Fourth Quarter Accounting and Financial Reporting Issues Update
Recent Publications:
• SEC modifies Staff Guidance on Revenue Recognition
• Common Questions When a Business is Acquired
• Proposed Accounting Standard Aims to Clarify Revenue Recognition for Not-for-
Profits

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