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AICPA Webcast "Understanding the New Revenue Recognition Standard" presented by McGladrey
 

AICPA Webcast "Understanding the New Revenue Recognition Standard" presented by McGladrey

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This webcast provides an overview of the new revenue recognition standard and will discuss how to prepare for the transition to the converged standard. This webcast will also outline current and ...

This webcast provides an overview of the new revenue recognition standard and will discuss how to prepare for the transition to the converged standard. This webcast will also outline current and planned AICPA resources to help companies transition to the new standard as it has the potential to reverberate through company processes and systems in significant ways.

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    AICPA Webcast "Understanding the New Revenue Recognition Standard" presented by McGladrey AICPA Webcast "Understanding the New Revenue Recognition Standard" presented by McGladrey Presentation Transcript

    • Understanding the New Revenue Recognition Standard June 16, 2014
    • American Institute of CPAs® Learning Center CPE & Administrative Notes Please ensure your pop-up blocker is disabled. If you registered for CPE, you must answer at least 75% of the random, attendance checks to receive CPE credit. Please respond to these attendance checks during today’s presentation, as you will not be able to respond to them in the archive. After answering the required number of attendance checks, you will be able to access your CPE certificate by clicking the “Get CPE” icon. You may ask content-related questions by entering your question in the “Q&A” box. For technical assistance, please click the “Help” and/or “Contact Us” icons at the bottom of your screen or call AICPA Member Service at 888.777.7077. You may download today’s slides and/or handouts by clicking the “Resource List” icon. 2
    • American Institute of CPAs® Learning Center CPE Certificate As a reminder, you may access your CPE certificate by clicking the “Get CPE” icon if you have fulfilled the attendance check requirements. If you do not have an opportunity to obtain your CPE certificate during today’s presentation, you may obtain your certificate after 24 hours by logging back into the event and clicking the “Get CPE” icon. Please note that you will not be able to respond to the attendance checks in the archive, and you must fulfill the attendance requirements during the actual presentation to receive your CPE certificate.
    • American Institute of CPAs® Learning Center Today’s presenters
    • American Institute of CPAs® Learning Center Brian Marshall brian.marshall@mcgladrey.com Brian is a partner in the National Professional Standards Group of McGladrey LLP. His primary areas of expertise include general revenue recognition, software revenue recognition, asset impairments, and business combinations accounting. Brian’s responsibilities include consulting with clients and engagement teams on complex accounting issues associated with these subject matters, facilitating training events for McGladrey professionals and external participants and writing interpretive guidance for McGladrey publications. He is also responsible for monitoring standard setting by the FASB and the FASB’s EITF and PCC, writing Firm comment letters on proposed standards to the FASB and has been a member of EITF working groups. Prior to joining McGladrey in 2007, Brian worked as a senior program manager in the accounting practices group of a Fortune 50 company, serving as a resource on complex technical accounting matters for the company’s global accounting community. Brian also was employed by a Big 4 firm for over eight years in various offices in the U.S. and Europe, with his last position being a senior manager in the assurance services group. Brian is a certified public accountant in the states of Connecticut and New York, and is a member of the AICPA.
    • American Institute of CPAs® Learning Center Richard Stuart richard.stuart@mcgladrey.com Richard is a partner in the National Professional Standards Group of McGladrey LLP. His primary areas of expertise are revenue recognition, leasing, variable interest entities and International Financial Reporting Standards. Richard’s primary responsibilities are consulting with clients and engagement teams on complex accounting issues, facilitating training events and writing interpretive guidance for McGladrey publications. Richard also monitors standard-setting activities domestic and internationally, and assists in developing Firm positions on proposed accounting standards. He is a former member of the FASB’s Valuation Resource Group and the AICPA’s Financial Reporting Executive Committee, and has also served on various EITF and AICPA working groups. Before joining McGladrey, Richard worked for two large multinational companies in their Accounting Practices Groups, and also spent time on the staff of the AICPA and FASB developing accounting standards. He started his career with Coopers and Lybrand, including a rotation in the Firm’s National Technical Accounting Group. Richard is a certified public accountant in the state of Connecticut, and is a member of the AICPA.
    • American Institute of CPAs® Learning Center Kim is a senior technical manager of the accounting standards team of the AICPA. In her role she is responsible for: • Managing the AICPA Insurance Expert Panel and AICPA NAIC Task Force • Preparing comment letters and member communications related to Revenue Recognition • Serving as a liaison with FASB, IASB, NAIC and SEC Staff on insurance issues • Staying abreast of CPA technical issues, and IASB and FASB Standards in order to educate and address member needs Prior to joining the AICPA, Kim started her career in the Short Hills, NJ office of KPMG LLP with a concentration in financial services. She then worked at Metropolitan Life Insurance Company as a Manager in Institutional Business – Finance. Kim Kushmerick kkushmerick@aicpa.org
    • American Institute of CPAs® Learning Center Agenda Overview Five-Step Revenue Model Other Issues Disclosures, Effective Date and Transition Post Standard Activities
    • American Institute of CPAs® Learning Center Overview
    • American Institute of CPAs® Learning Center Overview FASB/IASB joint project on revenue recognition completed last month resulting in substantially converged standards FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) Single revenue recognition model for contracts with customers that will impact almost all entities
    • American Institute of CPAs® Learning Center Core principle Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
    • American Institute of CPAs® Learning Center Scope Applies to all contracts with customers except those for: • Financial instruments • Guarantees other than warranties • Insurance • Leases • Certain nonmonetary exchanges Recognition and measurement principles also apply to most sales of nonfinancial assets that are not classified as revenue
    • American Institute of CPAs® Learning Center Five-step revenue model
    • American Institute of CPAs® Learning Center Five-step revenue model
    • American Institute of CPAs® Learning Center 1. Identify the contract with a customer Customer • A party that has contracted to obtain goods or services that are an output of an entity’s ordinary activities Contract • Agreement between two or more parties that creates enforceable rights and obligations Contract combination • Required for contracts entered into at or near the same time with same customer or related parties if meet certain criteria Contract modifications • Specific guidance addresses whether to treat modification as a separate contract, termination of the existing contract and creation of a new contract, or as part of the existing contract
    • American Institute of CPAs® Learning Center 2. Identify performance obligations Performance obligation is a promise in a contract to transfer a distinct good or service (or a series of distinct goods or services) Account for good or service separately if it is distinct, which includes both: • Capable of being distinct, because the customer can benefit from the good or service on its own or together with other resources readily available to the customer • Distinct within the context of the contract, because the good or service is separately identifiable from other goods or services
    • American Institute of CPAs® Learning Center 3. Determine the transaction price Amount of consideration to which an entity expects to be entitled to from a customer Variable consideration • Examples: Bonuses, penalties, price concessions • Estimate based on expected value or the most-likely amount, whichever is more predictive • Subject to a constraint - Only include amount for which it is probable that a significant reversal in cumulative revenue recognized will not occur - Exception for sales-based or usage-based royalties on licenses of intellectual property Significant financing component Other considerations
    • American Institute of CPAs® Learning Center 4. Allocate the transaction price Generally based on relative standalone selling prices of performance obligations • Best evidence of standalone selling price is observable price when sold separately - If no directly observable price, use techniques such as cost plus margin or adjusted market assessment - Residual or reverse residual methods may be used if price is highly variable or uncertain and other performance obligations have observable standalone selling prices • Exceptions to relative standalone selling price allocation - Discounts and variable consideration allocated to specific performance obligations under certain circumstances
    • American Institute of CPAs® Learning Center 5. Recognize revenue Recognize revenue as performance obligations are satisfied by transferring control to customer • Determine if satisfied (and revenue recognized) over time based on meeting any of the following criteria: - Customer simultaneously receives and consumes benefits as the entity performs - Entity’s performance creates or enhances an asset that customer controls as it is created or enhanced - Entity’s performance does not create an asset with an alternative use to the entity and there is an enforceable right to payment for performance completed to date • If satisfied over time, select method of progress toward completion (e.g., output or input method)
    • American Institute of CPAs® Learning Center 5. Recognize revenue Recognize revenue as performance obligations are satisfied by transferring control to customer (cont.) • If not satisfied over time, performance obligation is considered to be satisfied (and revenue recognized) at a point in time - Recognize revenue when customer obtains control based on consideration of several indicators, including when customer has: • Present obligation to pay • Legal title • Physical possession • Significant risks and rewards of ownership • Accepted the asset
    • American Institute of CPAs® Learning Center Other issues
    • American Institute of CPAs® Learning Center Contract costs Guidance only applies if costs not in scope of other ASC Topics Capitalize costs to fulfill a contract or anticipated contract if those costs: • Directly relate to the contract or anticipated contract; • Generate or enhance resources that will be used to satisfy performance obligations in the future; and • Are expected to be recovered Capitalize incremental costs to obtain a contract if expected to be recovered • Practical expedient to expense when amortization period would have been one year or less
    • American Institute of CPAs® Learning Center Warranties Customer has option to purchase separately or warranty provides an additional service • Treat as a performance obligation Customer does not have an option to purchase separately and warranty does not provide an additional service • No revenue impact but must accrue expected costs • Consider the following in determining whether warranty provides an additional service: - Whether warranty is required by law - Length of warranty period - Nature of tasks to be performed under warranty
    • American Institute of CPAs® Learning Center Licensing Evaluate whether license is distinct from other goods or services If distinct, recognize revenue at either a point in time or over time, depending on the nature of the license • If considered a right to use intellectual property as it exists at license grant date, recognize revenue at a point in time • If considered a right to access intellectual property as it exists throughout license period, recognize over time
    • American Institute of CPAs® Learning Center Treatment similar to current U.S. GAAP Return rights Loss contracts Customers’ unexercised rights (“Breakage”) Gross vs. net Consignment arrangements Bill-and-hold arrangements Customer acceptance
    • American Institute of CPAs® Learning Center Balance sheet presentation Contract asset/contract liability based on comparison of entity’s performance to customer’s performance • Entity > customer = contract asset • Entity < customer = contract liability Receivables are presented separately from other assets • Unconditional right to receive consideration
    • American Institute of CPAs® Learning Center Disclosures, effective date and transition
    • American Institute of CPAs® Learning Center Disclosures Disclosure objective: • Sufficient information regarding nature, amount, timing and uncertainty of revenue and related cash flows Annual and interim disclosures for public business entities greatly expanded Private company disclosure requirements are extensive as well, but substantially less than those of public business entities
    • American Institute of CPAs® Learning Center Effective date Effective date for public business entities and certain not-for-profit entities and employee benefit plans • Annual reporting periods beginning after December 15, 2016, including related interim periods • Early application is prohibited Effective date for all other entities • Annual reporting periods beginning after December 15, 2017, and interim periods in years thereafter • Early application is allowed (earliest would be for interim reporting periods in annual reporting periods beginning after December 15, 2016)
    • American Institute of CPAs® Learning Center Transition options Retrospective transition method • Apply ASU 2014-09 to all prior periods • Certain practical expedients are allowed Cumulative catch-up transition method • No restatement of prior periods • Apply ASU 2014-09 to in-progress contracts as of the adoption date going forward and subsequent contracts • Recognize a cumulative effect adjustment at adoption date for effects of applying ASU 2014-09 to in-progress contracts • Disclose in the year of adoption the effect on each line item in the financial statements as a result of adoption
    • American Institute of CPAs® Learning Center Post standard activities
    • American Institute of CPAs® Learning Center What to do now? Develop an implementation plan Training Evaluate accounting changes Determine transition method • Interim disclosures before effective Potential IT system/software application changes Educate key stakeholders
    • American Institute of CPAs® Learning Center Joint Transition Resource Group for Revenue Recognition Responsible for informing the FASB and the IASB about potential issues that could arise when implementing the new standard Group will solicit, analyze, and discuss stakeholder issues that apply to common transactions that could reasonably create diversity in practice Provide information to help the Boards determine what, if any, action will be needed to resolve diversity in practice Will not issue guidance
    • American Institute of CPAs® Learning Center AICPA Financial Reporting Center: Revenue Recognition Provides up to date information on the new Revenue Recognition standard, plus FASB and AICPA activities: www.aicpa.org/revenuerecognition Resources will include: • Business Brief/Roadmap • Learning and Implementation Plan • Audit Committee Primer • Financial Reporting Alert • Conferences • CPE Products • Journal of Accountancy Articles • Blog Posts • Webcasts • NEW Accounting Guide on Considerations for Applying the new Revenue Recognition Standard
    • American Institute of CPAs® Learning Center Aerospace and Defense Airlines Broker Dealers Construction Contractors Depository Institutions Energy and Utilities Gaming HealthCare Hospitality Insurance Investment Companies Not-for-Profit Oil and Gas Software Telecommunications Timeshares AICPA Revenue Recognition Industry Task Forces www.aicpa.org/revenuerecognition
    • American Institute of CPAs® Learning Center Questions