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McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?
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McGladrey Revised Revenue Recognition Exposure Draft Webcast – What Does It Mean for You?

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The FASB and IASB recently issued a revised exposure draft on revenue recognition after almost a year of redeliberations, with significant changes to the guidance originally proposed. …

The FASB and IASB recently issued a revised exposure draft on revenue recognition after almost a year of redeliberations, with significant changes to the guidance originally proposed.

In addition to covering the revised proposal's major provisions, the webcast (at http://mcgladrey.com/images/media/ws_revised_revenue_recognition.wmv) addressed the approach required to comply with the core principle of the revised proposal including:

- Identify the contract with a customer
- Identify the separate performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the separate performance obligations
- Recognize revenue when (or as) each performance obligation is satisfied

Published in: Economy & Finance, Business
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  • 1. Revised Revenue Recognition Exposure Draft– What Does It Mean for You?January 25 2012 25, 1
  • 2. Today’s presenters Rick Day, Partner, National Director of Accounting Richard Stuart, Partner, National Accounting Standards Group Brian Marshall, Partner, National Accounting Standards Group 2 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 3. Agenda Background and scope 10 min. Revised R i d proposed revenue model d d l 30 min. i Other revenue issues 15 min. Closing remarks 5 min. 3 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 4. ObjectiveBy the end of this webcast, you will be able tounderstand the key accounting concepts includedin the revised exposure draft on revenuerecognition and what it means for you. 4 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 5. Background and scope 5 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 6. Overview Preliminary views document issued in Dec. 2008 Exposure d ft issued i J E draft i d in June 2010 Revised exposure draft issued in Nov. 2011 with comments due March 13 d e Final standard expected in late 2012 / early 2013 6 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 7. Scope Applicable to all industries and entities Specific contracts with customers outside of scope: - Financial instruments - Guarantees (other than warranties) - Insurance - Leases - Certain nonmonetary exchanges y g Contracts with performance obligations in multiple standards Recognition and measurement principles also R iti d t i i l l applicable to sales of nonfinancial assets that are not classified as revenue 7 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 8. 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 8 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 9. Revised proposed revenue model 9 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 10. Overview Approach to comply with core principle Identify the Identify the Determine Allocate the Recognizecontract with separate the transaction revenue when a customer performance transaction price to the (or as) each (Step 1) obligations in price separate performance the contract (Step 3) p performance obligation is (Step 2) obligations satisfied (Step 4) (Step 5) 10 © 2012 McGladrey & Pullen, LLP. All Rights Reserved. © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 11. 1. Identify the contract with a customer Enforceable agreement between parties Can be itt C b written, oral or i li d l implied Combination - Required f contracts entered into at or near the R i d for t t t di t t th same time if certain criteria are met Modifications - Treat separately if separate performance obligation is added and the consideration is consistent with its standalone selling price - Otherwise combine with remaining goods or services 11 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 12. 2. Identify separate performance obligations Promise in a contract to transfer a good or service Account for separately if distinct because either of the following criteria are met: - Good or service is regularly sold separately by the entity; or g y p y y y; - Customer can benefit from good or service on its own or together with other readily available resources However, b dl of promised goods or services i H bundle f i d d i is accounted for as one performance obligation if both of the following criteria are met: g - Highly interrelated and require significant integration service; and - Significantly modified or customized to fulfill contract 12 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 13. 3. Determine the transaction price Amount of consideration to which an entity expects to be entitled from a customer Variable consideration - Estimate based on probability-weighted or most probability weighted most- likely amount Time value of money - Only affects transaction price if significant financing component exists - Can ignore if time between payment and transfer of goods or services is one year or less 13 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 14. 3. Determine the transaction price Noncash consideration - Measure at fair value or b reference t standalone M tf i l by f to t d l selling price of related goods or services Consideration payable to a customer - Reduction of transaction price unless in exchange for distinct good or service Collectibility - Not considered in transaction price - Record uncollectible amounts adjacent to revenue 14 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 15. 4. Allocate the transaction price Generally based on relative standalone selling prices of separate performance obligations Standalone selling price - Observable price when sold separately ( p p y (best) ) - Otherwise, estimate based on: • Cost plus margin • Adjusted market assessment • Residual technique allowed if highly variable or uncertain • Others? Subsequent changes i th t S b t h in the transaction price ti i are allocated on a relative standalone selling p price basis unless certain criteria are met 15 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 16. 5. Recognize revenue Recognize revenue as performance obligations are satisfied based on transfer of control Determine if satisfied (and revenue recognized) over time, based on whether entity’s performance: , y p - Creates or enhances an asset the customer controls; or - Does not create an asset with an alternative use and one of following criteria is met: • Customer receives a benefit as entity performs • Another entity would not need to reperform work completed to date • Vendor has right to payment for performance to date Select method of progress toward completion (output i ( t t or input) t) 16 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 17. 5. Recognize revenue If prior criteria not met, then satisfied at a point in time Recognize revenue when customer obtains control based on following indicators: - Entity has right to payment - Entity has transferred physical possession - Customer has legal title and risks and rewards of ownership - Customer has accepted goods or services Recognize amount allocated to performance obligation except for certain variable consideration, which is limited to t reasonably assured amount b bl d t based on: d - Experience with similar performance obligations - Whether that experience is p p predictive of outcome 17 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 18. Other revenue issues 18 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 19. Onerous performance obligations Only applicable to performance obligations satisfied over a period greater than one year Recognize liability if allocated transaction price is less than lower of: - Direct costs to satisfy performance obligation; or - Amount to be paid to exit the performance obligation Direct costs include: - Direct labor and materials - Allocated costs directly related to contract - Costs explicitly chargeable to the customer - Other costs incurred only because contract entered into y 19 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 20. Contract costs Capitalize direct costs of fulfilling a contract or anticipated contract if those costs: - Generate or enhance a resource that will be used to satisfy performance obligations in the future (e.g., setup costs); and - Are expected to be recovered Capitalize incremental costs to obtain contract if expected to be recovered Practical expedient to expense costs as incurred if amortization period would have been one year or less y 20 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 21. Warranties Customer option to purchase separately - Separate performance obligation recognized over S t f bli ti i d time (warranty service) No customer option to purchase separately and warranty does not provide an additional service - Recognize revenue and accrue expected costs g p - Consider following in determination of whether additional service is being provided: • Whether Wh h warranty i required b l is i d by law • Length of warranty period • Nature of tasks to be performed 21 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 22. Other issues Customers’ unexercised rights (“Breakage”) - Relatively R l ti l consistent with current U S GAAP practice i t t ith t U.S. ti Licensing and rights to use - Same guidance as f other goods or services S id for h d i - Revenue recognized at point in time when control transfers if separate performance obligation 22 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 23. Disclosures / transition / effective date Disclosure objective: - Quantitative and qualitative i f Q tit ti d lit ti information regarding ti di nature, amount, timing and uncertainty of revenue and related cash flows Retrospective transition with certain practical expedients Effective date no earlier than 2015 for public entities and 2016 for nonpublic entities 23 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 24. Questions?For more information, please contact: ,pRick Dayrick.day@mcgladrey.comrick day@mcgladrey com563.888.4017Brian Marshallbrian.marshall@mcgladrey.com203.312.9329203 312 9329Richard Stuartrichard.stuart@mcgladrey.com203.905.5027 24 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 25. McGladrey thought leadershipAccounting publications and resource site:http://mcgladrey.com/Assurance/Accounting-Resources p g y g 25 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 26. McGladrey thought leadershipPublications subscription site:http://mcgladrey.com/Publications/Publication-Subscription p g y p 26 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 27. Experience the power of being understood.SMAbout McGladreyMcGladrey & Pullen, LLP operates under the McGladrey brand as the fifth largest U.S.provider of assurance, tax and consulting services, with nearly 6,500 professionals and f fassociates in more than 70 offices nationwide. McGladrey & Pullen is a licensed CPA firm.It is the U.S. member of RSM International (“RSMI”). RSM International is the sixth largestnetwork of independent accounting tax and consulting firms worldwide with 714 offices in 83 accounting, worldwide,countries, and more than 32,000 people. The member firms of RSMI collaborate to provideservices to global clients, but are separate and distinct legal entities which cannot obligate eachother. Each member firm is responsible only for its own acts and omissions, and not those ofany other party.We provide assurance, tax and consulting services through our practice areas: - Assurance - Tax - Consulting Follow us on: - Wealth Management - International Business 27 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.
  • 28. Thank you! The information contained herein is general in nature and based on authorities that are subject to change. McGladrey & Pullen, LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions or for results obtained by others as a result of reliance upon such information. McGladrey & Pullen, LLP assumes no obligation to inform participants of any changes in tax laws or other factors that could affect information contained herein. This presentation does not, and is not intended to, provide legal, tax or accounting advice and readers should consult their tax advisors concerning the application of tax laws to their particular situations. Circular 230 Disclosure This analysis is not tax advice and is not intended or written to be used and cannot be used for purposes of avoiding tax penalties that may be imposed on any taxpayer. 28 © 2012 McGladrey & Pullen, LLP. All Rights Reserved.

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