Citrin Cooperman's Revenue Recognition Webinar November 2, 2017

ASC 606, REVENUE
FROM CONTRACTS WITH
CUSTOMERS
ARE YOU READY?
November 2, 2017 WWW.CITRINCOOPERMAN.COM

PRESENTED BY
Mary Paladino, CPA
Partner
Mark L. Fagan, CPA
Partner
Vincent Abbruzzese, CPA
Director
Mary oversees the audit and
assurance services practice in the
firm’s White Plains, NY office.
She brings more than 25 years of
experience providing audit,
accounting, and business consulting
services to her clients in a diverse
range of industries, including
manufacturing & distribution, health
care, technology, and not-for-profit.
Mark has over 25 years of audit, tax,
and business advisory experience, he
serves clients in a wide range of
industries, including technology,
financial services, private equity,
manufacturing and distribution, and
construction.
Mark’s clients range from privately held
middle-market firms to larger, complex,
multi-national organizations.
Vincent has more than 14 years of
experience providing audit and
assurance services to middle-market
clients in various industries. His main
practice areas include construction,
health care, manufacturing/distribution,
real estate, and technology.
Vincent specializes in researching and
resolving significant accounting and
auditing issues timely and efficiently.

PRIMARY OBJECTIVES OF ASC 606
The provisions of Topic 606 were designed, and are expected to:
 Provide a more robust framework for addressing revenue recognition issues
 Improve comparability of revenue recognition practices across industries,
entities within those industries, jurisdictions and capital markets
 Provide more useful information to investors through enhanced disclosure
requirements
ASC 606 is the culmination of more than 12 years of work in a joint project
between the FASB and the IASB, with an overall objective of developing a
unified, principle-based standard on accounting for revenue from customers.

ARE YOU
READY?
 “Public companies—including Amazon.com Inc. and Microsoft
Corp.—are gearing up for the most historic accounting changes to
hit U.S. capital markets in decades” and
 “We have before us a perfect accounting storm, the likes of which
has not been seen since the late 1990s” and
 “Hopefully, fear is what you’re feeling now.”
A recent blog on forbes.com entitled “Yes, It's Accounting, But ASC 606
Could Have A Huge Impact On Your Company” featured the following
quotes:
The most profound new compliance changes to come to
corporate finance since Sarbanes-Oxley. And they’re five
months away (for public companies).
What are these
people talking
about?

EFFECTIVE
DATES ARE
LOOMING
 Public companies, certain not-for-profit entities, and
employee benefit plans that file on Form 11-K must
apply the provisions of ASC 606 for or annual periods
beginning after December 15, 2017.
Thankfully for most of you participating in this webinar, you still have
time to evaluate the impact of ASC 606 on your company. Effective dates
are:
 All other entities will apply the guidance for the
first annual period beginning after December 15,
2018 and for interim reporting periods beginning
after December 15, 2019.
 All entities are permitted to adopt earlier.

TOPIC 606: SCOPE
The guidance in Topic 606 is NOT applicable to the following contracts:
 Lease contracts within the scope of Topic 840, Leases.
 Financial Services—Insurance contracts within the scope of Topic 944 .
 Financial instruments
 Guarantees (other than product or service warranties)
 Nonmonetary exchanges between entities in the same line of business to facilitate
sales to customers or potential customers.

POLLING QUESTION 1
How prepared are you for the implementation of ASC 606: Revenue From
Contracts With Customers?
1. Not prepared
2. Somewhat prepared
3. Fully prepared
4. Not sure

AGENDA
i. Topic 606: The Core Principle
ii. Applying the Core Principle – The Five Step Model
iii. Disclosures
iv. Transition Options
v. Key Considerations for Transition
vi. Industry Task Forces

TOPIC 606: THE CORE PRINCIPLE
Makes clear that it is the “transfer” of goods or services to
the customer that results in revenue being recognized.
Core Principle
The Core Principle of ASC 606 is to “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”
Notes that revenue is measured based on the “consideration”
to which the entity will be entitled.
Indicates that revenue is measured based on the amount to
which the company “expects” to be entitled.

Step 5
Satisfaction of
performance
obligations
Step 1
Identify the
contract with
the customer
Step 2
Identify the
performance
obligations
in the contract
Step 3
Determine the
transaction
price
Step 4
Allocate the
transaction
price to the
performance
obligations
APPLYING THE CORE PRINCIPLE:
THE FIVE STEP MODEL

Establish whether a valid agreement exists between two parties.
Step 1
Identify
the
contract
with the
customer
Topic 606 defines a contract as an agreement between two or more
parties that creates enforceable rights and obligations.
 Contracts can be written, oral, or implied by an entity’s
customary business practices.
 The practices and processes for establishing contracts with
customers vary across legal jurisdictions, industries, and
entities.
An entity shall consider those practices and processes in determining
whether and when an agreement with a customer creates
enforceable rights and obligations.
APPLYING THE CORE PRINCIPLE – STEP 1

A contractual arrangement with a customer exists only when all of the
5 criteria are met:Step 1
Identify
the
contract
with the
customer
1
Approved
by
committed
parties
3
Identify
payment
terms
2
Identify
each
party’s
rights
4
Contract
has
commercial
substance
5
Collection of
substantially all
consideration is
probable

Step 2
Identify the
performance
obligations
in the
contract
Identification of Performance
Obligations (Promises) in a Contract
is Critical to Appropriately
Identifying the Unit of Accounting for
Purposes of Allocating the
Transaction Price (Step 4).

Step 2
Identify the
performance
obligations
in the
contract
In other words, first identify the promises in a contract, then evaluate and
determine which promises represent separate performance obligations.
This exercise can range from very simple to very complex!
Topic 606 defines a performance obligation as
a promise in a contract with a customer to
transfer a good or service to the customer.
Performance Obligation
An entity must identify the goods and services promised in
a contract at inception and determine which of those
goods and services are separate performance obligations.

Step 2
Identify the
performance
obligations
in the
contract
Promises to transfer goods or services can be Explicit or Implied
 Explicit promises are generally easily identifiable and are
stated clearly in the contract.
 Implied promises may be harder to identify. A contract
with a customer may include promises that are implied
by an entity’s customary business practices, published
policies, or specific statements. If, at the time of
entering into the contract, those promises create a
reasonable expectation of the customer that the entity
will transfer a good or service, they are implied
promises.

ASC 606-10: Example 12
STEP 2
IMPLICIT
PROMISES
EXAMPLE
CASE B – IMPLICIT PROMISE OF SERVICE
55-153 A contract with the customer includes two promised goods or services — The product and
maintenance services.
55-154 The entity has historically provided maintenance services for no additional consideration (“free”)
to end customers that purchase the entity’s product from the distributor. The entity does not
explicitly promise maintenance services during negotiations with the distributor, and the final
contract between the entity and the distributor does not specify terms for those services.
55-155 However, on the basis of its customary business practice, the entity determines at contract
inception that it has made an implicit promise to provide maintenance services as part of the
negotiated exchange with the distributor. The entity’s past practices of providing these services
create reasonable expectations of the entity’s customers.
Consequently, the entity assesses whether the promise of maintenance services is a performance
obligation, the entity determines that the product and maintenance services are separate
performance obligations.
General: A manufacturer sells a product to a distributor (its customer), who will
then resell it to an end customer.

Step 2
Identify the
performance
obligations
in the
contract
A. A good or service (or bundle of goods or services) that is
distinct.
B. A series of distinct goods or services that are
substantially the same and that have the same pattern of
transfer to the customer.
A good or service that is not distinct should be combined with other
promised goods or services until the entity identifies a bundle of goods or
services that are distinct.
Topic 606 requires that, at contract inception, an entity assess the goods or
services promised in a contract and identify as a performance obligation
each promise to transfer to the customer either:

Step 2
Identify the
performance
obligations
in the
contract
1. The customer can benefit from the good or service either
on its own or together with other resources that are
readily available to the customer (that is, the good or
service is capable of being distinct).
2. The entity’s promise to transfer the good or service to the
customer is separately identifiable from other promises in
the contract (that is, the promise to transfer the good or
service is distinct within the context of the contract).
A good or service is distinct if both of the following criteria are met:

Step 2
Identify the
performance
obligations
in the
contract
In assessing whether an entity’s promises to
transfer goods or services to the customer are
separately identifiable, the objective is to
determine whether the nature of the promise,
within the context of the contract, is to transfer
each of those goods or services individually or,
instead, to transfer a combined item or items to
which the promised goods or services are inputs.
Separately Identifiable (Distinct Within the Context of the Contract)

Step 3
Determine
the
transaction
price
As performance obligations are
satisfied, revenue is recognized for
the amount of the transaction price
that is allocated to that performance
obligation.

Step 3
Determine
the
transaction
price
The transaction price is the amount of consideration to
which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties.
An entity must consider the terms of the contract and its
customary business practices in determining the
transaction price.
The consideration promised in a contract with a customer may include
fixed amounts, variable amounts, or both. The table on the following
page demonstrates the components that must be considered in
determining the transaction price.
Transaction Price

Step 3
Determine
the
transaction
price
TRANSACTION PRICE
Fixed
Consideration
(+)
Variable
Consideration
(+)
Significant
Financing
Component
(+)
Non-
Cash
Consideration
(-)
Consideration
Paid to
Customers
(-)
Sales
Tax
=
Variable
consideration may
result from
discounts, rebates,
refunds, credits,
price concessions,
incentives,
performance
bonuses, penalties,
contingency based
on the occurrence
or nonoccurrence
of a future event,
etc.
The effects of the
time value of
money if the
timing of payments
agreed to by the
parties to the
contract provides
the customer or
the entity with a
significant benefit
of financing the
transfer of goods
or services to the
customer.
Step 3 requires
companies to
measure the
estimated fair
value of all
non-cash
consideration
at inception of
the contract in
determination
of the
transaction
price.
Consideration
payable to a
customer includes
cash amounts that
an entity pays, or
expects to pay, to
the customer,
including credits
or other items
such as coupons
or vouchers that
can be applied
against amounts
owed to the
entity.
Or other
amounts
collected on
behalf of
third parties
Cash flows in a
contract with a
customer that
are known as
of contract
inception and
do not vary
during the
contract.

The variability relating to the consideration promised by a customer
may be:
Step 3
Determine
the
transaction
price
Variable Consideration
(i) explicitly stated in the contract; or
(ii) if the customer has a valid expectation arising from an
entity’s customary business practices, published
policies, or specific statements, or other facts and
circumstances, that the entity will accept an amount of
consideration that is less than the price stated in the
contract, (i.e. prices concessions such as discounts,
rebates, refunds or other credits.

The following are common features in contracts that may be more difficult
to identify as variable consideration:
Step 3
Determine
the
transaction
price
 Royalty arrangements
 Product returns and other customer credits
 Variable quantities and volumetric optionality
 Volume-based and other rebates
 Cash and volume discounts
 Performance-based bonuses or penalties
If a contract includes a variable component, an entity must estimate
the amount of consideration to which it will be entitled (using all the
information that is reasonably available) using either the Expected
Value Method or the Most Likely Amount Method as further described.

The amount of variable consideration must be estimated by using either of the
following methods (based on which method better predicts the amount of
consideration to which the entity will be entitled):
Step 3
Determine
the
transaction
price
 The expected value method — is the sum of probability-weighted
amounts in a range of possible consideration amounts (may be
appropriate if an entity has a large number of contracts with similar
characteristics).
 The most likely amount method — is the single most likely amount
in a range of possible consideration amounts (may be an appropriate
estimate if the contract has only two possible outcomes).
The same method must be used consistently throughout the life of the
contract when estimating the effect of an uncertainty on an amount of
variable consideration to which the entity will be entitled.

Step 3
Determine
the
transaction
price
Expected Value Method Example
Variable consideration $0 to $100
Probability Result
Probability
weighted
5% $ 100 $ 5.0
50% $ 80 $ 40.0
25% $ 50 $ 12.5
15% $ 30 $ 4.5
5% $ 20 $ 1.0
100% $ 63.00

Constraining Estimates
 In an effort to limit the number of subsequent downward adjustments to
revenue related variable consideration, Topic 606 introduced the concept
of “constraining estimates”.
 This concept allows revenue from variable consideration to be included in
the transaction price only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
 In assessing whether it is probable that a significant reversal in the
amount of cumulative revenue recognized will not occur, an entity must
consider both the likelihood and the magnitude of the revenue reversal.
Step 3
Determine
the
transaction
price

Step 3
Determine
the
transaction
price
Reassessment of Variable Consideration
Topic 606 requires that, at the end of each reporting
period, the estimated transaction price (including its
assessment of whether an estimate of variable
consideration is constrained) must be updated to
represent faithfully the circumstances present at the
end of the reporting period and the changes in
circumstances during the reporting period.

Step 3
Determine
the
transaction
price
 Consideration is often given to customers as incentive to entice the
customer to purchase, or continue purchasing, its goods or services.
 Consideration payable to a customer includes cash amounts that an
entity pays, or expects to pay, credits, or other items such as coupons or
vouchers that can be applied against amounts owed to the entity.
 Consideration payable to a customer is accounted for as a reduction of
the transaction price and, therefore, of revenue unless the payment to
the customer is in exchange for a distinct good or service that the
customer transfers to the entity.
 If the consideration payable to a customer includes a variable amount,
an entity shall estimate the transaction price, including assessing
whether the estimate of variable consideration is constrained.
Consideration Payable to a Customer

POLLING QUESTION 2
True or False: Promises to transfer goods or services can be explicit or
implied.
1. True
2. False

APPLYING THE CORE PRINCIPLE
STEP 1
Identified the Contract
with the Customer
STEP 2
Identified Performance
Obligations
STEP 3
Determined the
Transaction Price
WHERE WE HAVE BEEN:
WHERE WE ARE GOING:
STEP 4
Allocate the Purchase
Price to Performance Obligations
STEP 5
Satisfaction
of Performance
Obligations

Step 4
Allocate the
transaction
price to the
performance
obligations
OBJECTIVE
The objective is for an entity to
allocate the transaction price to
each performance obligation in an
amount that depicts the amount of
consideration the entity expects to
be entitled in exchange for
transferring the promised goods or
services.

Step 4
Allocate the
transaction
price to the
performance
obligations
Allocate the Transaction Price
Discounts within a contract are generally allocated proportionately to
all of the performance obligations, but may be allocated to only
certain performance obligations if specified criteria are met .
In certain situations, variable consideration may be allocated to a
single performance obligation.
To meet this objective, the transaction price must be allocated to each
performance obligation on a relative stand-alone selling price basis
(i.e., the price at which an entity would sell a good or service
separately to a customer).

Step 4
Allocate the
transaction
price to the
performance
obligations
Allocate the Transaction Price
 If the standalone selling price is not directly observable, it
should be estimated in an amount that depicts the amount
of consideration the entity expects to be entitled.
 Standalone selling prices are determined at contract
inception and are not updated to reflect changes between
contract inception and when performance is complete.
In estimating the stand alone selling price, all information that is
reasonably available, including market conditions, entity-specific
factors, and customer specific factors must be considered.

Step 4
Allocate the
transaction
price to the
performance
obligations
Estimating the Stand-Alone Selling Price
Market Conditions to Consider
 Potential limits on the selling price of the
product
 Competitor pricing for a similar or
identical product
 Market awareness of and perception of
the product
 Current market trends that will likely
affect the pricing
 The entity’s market share and position
(ability to dictate pricing)
 Effects of the geographic area on pricing
 Effects of customization on pricing
 Expected life of the product
Entity Specific Factors to Consider
 Profit objectives and internal cost
structure
 Pricing practices objectives
 Effects of customization on pricing
 Pricing practices used to establish pricing
of bundled products
 Effects of a proposed transaction on
pricing
 Expected life of the product, including
significant entity specific technological
advances expected in the near future

Step 4
Allocate the
transaction
price to the
performance
obligations
Suitable methods for estimating the standalone selling price of a good or
service include, but are not limited to, the following:
a. Adjusted market assessment approach — An entity could evaluate
the market in which it sells goods or services and estimate the price
that a customer in that market would be willing to pay for those goods
or services. That approach also might include referring to prices from
the entity’s competitors for similar goods or services and adjusting
those prices as necessary to reflect the entity’s costs and margins.
b. Expected cost plus a margin approach — An entity could forecast its
expected costs of satisfying a performance obligation and then add an
appropriate margin for that good or service.
Continued

Step 4
Allocate the
transaction
price to the
performance
obligations
c. Residual approach — An entity may estimate the standalone selling price
by reference to the total transaction price less the sum of the observable
standalone selling prices of other goods or services promised in the
contract only if one of the following criteria is met:
(Continued)
1. The entity sells the same good or service to different customers
(at or near the same time) for a broad range of amounts
2. The entity has not yet established a price for that good or
service, and the good or service has not previously been sold
on a standalone basis (that is, the selling price is uncertain).
Other estimation approaches may be used so long as they are consistent with
the notion of a standalone selling price, maximize the use of observable inputs
and are applied on a consistent basis.

ASC 606-10 Example 33 (Summarized)
STEP 4
ALLOCATION
METHODOLOGY
EXAMPLE
Manufacturing Co. enters into a contract with a customer to sell Products A, B and C for $100,000. The
company will satisfy the performance obligations for each of the products at different points in time.
The transaction price is allocated to each performance obligation on a relative standalone selling price
basis, with the discount allocated proportionately across Products A, B and C as follows:
Contract Price 100,000$
Performance Obligations:
Contract Price
Allocated
Product A 50,000$ 33% 33,326$
Product B 25,000 17% 16,673
Product C 75,000 50% 50,001
150,000$ 100% 100,000$
Implied Discount (50,000)$
Stand-Alone
Selling Price
* Allocated Based on Relative Stand
Alone Selling Prices
Stand Alone Selling Price Method

Step 4
Allocate the
transaction
price to the
performance
obligations
Exceptions to the Stand-Alone Selling Price Method
The guidance provides for two exceptions to the Stand Alone Selling Price
Method for allocating the transaction price to performance obligations:
When observable evidence exists that inherent discounts relate to only
one or more, but not all, performance obligations in a contract, the entity
should allocate the inherent discount to the performance obligations to
which the discount relates.
Variable consideration may be allocated to one performance obligation
(or one distinct portion of a series) if the following criteria are met:
 The terms of a variable payment relate specifically to the specific
performance obligation, and
 Is consistent with the allocation objective when considering all of the
performance obligations and payment terms in the contract.
1
2

Step 5
Satisfaction
of
performance
obligations
A company may recognize revenue only
when (as) it satisfies a performance
obligation by transferring a promised
good or service to the customer. A good
or service is considered to be transferred
when the customer obtains control.

Step 5
Satisfaction
of
performance
obligations
The standard defines control as an entity’s ability to direct the use
of and obtain substantially all of the remaining benefits of an
asset. Control should be viewed from the customer’s perspective.
Concept of Control
A framework for revenue recognition based on control is represents a
different approach from legacy guidance based on “risks and rewards”, which
draws on the following four criteria in SAB Topic 13:
The FASB and the IASB achieved a key objective of creating a single
framework, based on CONTROL, to determine when to recognize revenue.
1. Persuasive evidence of an arrangement exists
2. Delivery has occurred or services have been rendered
3. The seller’s price to the buyer is fixed or determinable
4. Collectibility is reasonably assured
LEGACY
GUIDANCE!

In order to determine WHEN to recognize revenue, at contract
inception, each performance obligation identified in Step 2
must be assessed to determine whether it is satisfied –
 Over time; or
 At a Point in Time.
If an entity does not satisfy a performance obligation over
time, the performance obligation is satisfied at a point in time.
Step 5
Satisfaction
of
performance
obligations
Goods are generally transferred at a point in time, while services
are generally transferred over time. However, this is not always the
case! Contract terms will need to be carefully assessed to make the
proper determination of when control is transferred the customer!
Performance Obligations - Satisfied Over Time or at a Point in Time?

Step 5
Satisfaction
of
performance
obligations
(Cont.)
(a)
The entity has a
present right to
payment for the
asset
(b)
The customer
has legal title to
the asset
(c)
The entity has
transferred
physical
possession of
the asset
(d)
The customer
has the
significant risks
and rewards of
ownership of
the asset
(e)
The customer
has accepted
the asset
If a performance obligation is not satisfied over time, it is satisfied at a point in
time. To determine the point in time at which a customer obtains control of a
promised asset and the entity satisfies a performance obligation, the entity shall
consider the guidance on control in paragraphs 606-10-25-23 through 25-26. In
addition, an entity shall consider indicators of the transfer of control, which include,
but are not limited to, the following:

The entity’s
performance does not
create an asset with an
alternative use to the
entity, and the entity
has an enforceable
right to payment for
performance
completed to date.
The entity’s
performance creates
or enhances an asset
that the customer
controls as the asset is
created or enhanced
(i.e., property
renovations or
hardware integration
at customer location.
The customer
simultaneously
receives and consumes
the benefits provided
by the entity’s
performance as the
entity performs. (i.e.,
payroll or cleaning
services).
Step 5
Satisfaction
of
performance
obligations
Performance Obligations - Satisfied Over Time or at a Point in Time?
Control of a good or service transfers over time, and therefore satisfies a
performance obligation and recognizes revenue over time, if one of the
following criteria is met:

ASC 606-10 Example 14
Company A considers the relevant guidance to determine if the customer simultaneously receives
and consumes the benefits of Company A’s performance. If Company A were to be unable to satisfy
its obligation and the customer hired another consulting firm to provide the opinion, the other
consulting firm would need to substantially reperform the work that Company A had completed to
date because they would not have the benefit of any work in progress performed by Company A.
The nature of the professional opinion is such that the customer will receive the benefits of
Company A’s performance only when the customer receives the professional opinion. Therefore, the
customer does not simultaneously receive and consume the benefits of Company A’s performance
and doe not meet this criteria to satisfy a performance obligation over time.
STEP 5
ASSESSING
ALTERNATIVE USE
AND
RIGHT TO
PAYMENT
EXAMPLE  Company A enters into a contract with a customer to provide a consulting service that results in
providing a professional opinion to the customer.
 The professional opinion relates to facts and circumstances that are specific to the customer.
 If the customer were to terminate the consulting contract for reasons other than Company A’s
failure to perform as promised, the contract requires the customer to compensate Company A
for its costs incurred plus a 15% margin.

ASC 606-10 Example 14
However, Company A’s performance obligation does meet the “alternate use” and “enforceable
right to payment” criterion and therefore is a performance obligation satisfied over time because of
both of the following factors:
a. The development of the professional opinion does not create an asset with alternative use to
Company A because the professional opinion relates to facts and circumstances that are
specific to the customer. Therefore, there is a practical limitation on the entity’s ability to
readily direct the asset to another customer,
AND
b. Company A has an enforceable right to payment for its performance completed to date for its
costs plus a reasonable margin, which approximates the profit margin in other contracts.
Consequently, Company A may recognize revenue over time by measuring the progress toward
complete satisfaction of the performance obligation in accordance with relevant guidance.
STEP 5
ASSESSING
ALTERNATIVE USE
AND
RIGHT TO
PAYMENT
EXAMPLE

Step 5
Satisfaction
of
performance
obligations
Measuring Progress toward Complete Satisfaction
of a Performance Obligation
For each performance obligation satisfied over time, an entity shall
recognize revenue over time by measuring the progress toward
complete satisfaction of that performance obligation. The objective
when measuring progress is to depict an entity’s performance in
transferring control of goods or services promised to a customer (that
is, the satisfaction of an entity’s performance obligation).
An entity shall apply a single method of measuring progress for
each performance obligation satisfied over time, and the entity
shall apply that method consistently to similar performance
obligations and in similar circumstances.

Step 5
Satisfaction
of
performance
obligations
Appropriate methods of measuring progress include
output methods and input methods.
Output Methods
Output methods recognize revenue on the basis
of direct measurements of the value to the
customer of the goods or services transferred to
date relative to the remaining goods or services
promised under the contract.
Output methods include methods such as:
• surveys of performance completed to
date, appraisals of results achieved,
• milestones reached,
• time elapsed,
• and units produced or units delivered.
Input Methods
Input methods recognize revenue on the basis of
the entity’s efforts or inputs to the satisfaction of
a performance relative to the total expected
inputs to the satisfaction of that performance
obligation, for example:
• resources consumed,
• labor hours expended,
• costs incurred,
• time elapsed,
• or machine hours used.
An entity’s selection of the method used to measure its performance needs to be
consistent with the nature of its promise to the customer and what the entity has
agreed to transfer to the customer.

DISCLOSURE
The objective of disclosure requirements in ASC 606 is for an entity to
disclose sufficient information to enable financial statement users to
understand the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. This objective requires an entity
to disclose qualitative and quantitative information about the following:
 Its contracts with customers
 The significant judgments, and changes in the judgments,
made in applying the guidance in Topic 606
 Any assets recognized from the costs to obtain or fulfill a
contract with a customer
Companies will need to determine how much detail to include in
order to achieve the objective.
The Objective
of the
Disclosure
Requirement
Changes
Objective

DISCLOSURE
 Disclose revenue recognized from contracts with
customers separate of other sources of revenue.
 Disclose separately any impairment losses on any
receivables or contract assets arising from contracts
with customers
Contracts
with
Customers

DISCLOSURE
 Quantitative disclosures about revenue disaggregated based on:
 transfer of goods or services at a point in time
 transfer of goods or services over a period of time
 Qualitative information about how economic factors affect the
nature, amount, timing, and uncertainty of revenue and cash
flows, such as:
 type of customer,
 geographical location of customers,
 and type of contract
Disaggregation
of
Revenue
Requirement for non-public entities:

DISCLOSURE
 An entity is required to disclose the opening and closing
balances of receivables, contract assets, and contract
liabilities from contracts with customers, if not otherwise
separately presented or disclosed.
Contract
Balances

DISCLOSURE
 When the entity typically satisfies its performance
obligations:
 upon shipment or delivery,
 as services are rendered, or upon completion of service
 The significant payment terms:
 when payment typically is due,
 significant financing components,
 When consideration amount is variable, and whether the
estimate of variable consideration is typically constrained
Performance
Obligations
An entity shall disclose information about its performance obligations in
contracts with customers, including a description of all of the following:
Continued

DISCLOSURE
 The nature of the goods or services that the entity has
promised to transfer, highlighting any performance
obligations to arrange for another party to transfer goods
or services (that is, if the entity is acting as an agent)
 Obligations for returns, refunds, and other similar
obligations
 Types of warranties and related obligations
Performance
Obligations
(Continued)

DISCLOSURE
 The timing of satisfaction of performance obligations, the
methods used to recognize revenue (for example, a description
of the output methods or input methods used and how those
methods are applied).
 The transaction price and the amounts allocated to
performance obligations – assessing whether an estimate of
variable consideration is constrained.
Significant
Judgments
An entity shall disclose the judgments, and changes in the judgments, made
in applying the guidance in this Topic.

TOPIC 606: TRANSITION OPTIONS
The transition decision is an important one for all
entities as it will impact the level of effort needed to
adopt ASC 606. Companies have the following options:
Full Retrospective
Modified Retrospective
Which Transition
Option Makes the
Most Sense for
your Company?

 In this method, an entity shall apply the new standard
retrospectively to each prior reporting period presented,
in accordance with current guidance in ASC 250-10-45
(5-10), Change in Accounting Principle.
 Determine the cumulative effect of applying the new
standard as of the beginning of the first historical period
presented, and recast revenue and expenses for all prior
periods presented in the year of adoption of the new
standards
 Four optional practical expedients available. If an entity
decides to use any of the practical expedients, it must
apply the expedients consistently to all the periods
presented.
Retrospective
Which Transition
Option Makes the
Most Sense for
your Company?

 An entity shall recognize a cumulative effective change
to opening retained earnings in the year of adoption of
the standard. An entity may apply this to all contracts as
of the date of initial application (Jan. 1, 2018 for
instance) or to contracts that are not completed. An
entity shall disclose which approach was used.
 If an entity uses this transition approach, the prior year
financial statements will be presented in accordance
with its historical revenue recognition methods
Modified Retrospective
Which Transition
Option Makes the
Most Sense for
your Company?

POLLING QUESTION 3
Which step of ASC 606 do you feel will be most challenging to assess?
1. Step 1 – Identify the contract with the customer
2. Step 2 – Identify the performance obligations in the contract
3. Step 3 – Determine the transaction price
4. Step 4 – Allocate the transaction price to the performance
obligations
5. Step 5 – Satisfaction of performance obligations

KEY CONSIDERATIONS FOR TRANSITION
Changes in the process of
how revenue is recognized
Changes to internal
controls
Changes to
IT systems
Contracts
Perspective of impact in
the eyes of investors and
shareholders
Tax implications Disclosures Other business processes

INDUSTRY TASK FORCES
For more information on the AICPA revenue recognition task forces, visit www.aicpa.com
AICPA INDUSTRY TASK FORCES
 Aerospace and defense
 Airlines
 Broker-dealers
 Construction contractors
 Depository Institutions
 Gaming
 Health Care
 Hospitality
 Insurance
 Investment asset management
 Not-for-profit
 Oil and gas
 Power and utility
 Software
 Telecomm
 Timeshare
According to the AICPA, through
June 1, 2017, the 16 industry
task forces have identified 140
implementation issues, of which
only 46 have been finalized for
the industry guides!

HELPING
YOU FOCUS
ON WHAT
COUNTS
citrincooperman.com
Mary Paladino, CPA
Partner
914.949.2990
mpaladino@citrincooperman.com
Mark L. Fagan, CPA
Partner
203.847.4068
mfagan@citrincooperman.com
Vincent Abbruzzese, CPA
Director
914.949.2990
vabbruzzese@citrincooperman.com
This presentation includes excerpts from the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers
(“Topic 606”); and the American Institute of Certified Public Accountants (“AICPA”) implementation guidance on Topic 606 found on their website at AICPA.ORG. These materials
provided by Citrin Cooperman & Company, LLP, are intended to provide general information on a particular subject or subjects and are not an exhaustive treatment of such subject(s)
and are not intended to be a substitute for reading the legislation or accounting standards themselves, or for professional judgment as to adequacy of disclosures and fairness of
presentation. The materials are being provided with the understanding that the information contained therein should not be construed as legal, accounting, tax or other professional
advice or services. Before making a decision or action that may affect your business, you should consult with Citrin Cooperman & Company, LLP, or another qualified professional
advisor. The materials and the information contained therein are provided as is, and Citrin Cooperman & Company, LLP, makes no express or implied representations or warranties
regarding these materials or the information contained therein. Without limiting the foregoing, Citrin Cooperman & Company, LLP, does not warrant that the materials or information
contained therein will be error-free or will meet any particular criteria or performance or quality. In no event shall Citrin Cooperman & Company, LLP, its affiliates, officers, principals
and employees be liable to you or anyone else for any decision made or action taken in reliance on the information provided in these materials. The information and content provided in
these materials is owned by Citrin Cooperman & Company, LLP, and should only be used for your personal or internal use and should not be copied, redistributed or otherwise provided
to third parties.

Citrin Cooperman's Revenue Recognition Webinar November 2, 2017

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