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  • Revenue recognition
    Search site Toggle navigation Home News Publications Meetings Standards Projects Jurisdictions Resources My IAS Plus Topics Communications Toggle navigation Search site Navigation Global publications Newsletters Publication series Analysis and opinion Special topics Insurance Revenue recognition Implementing IFRS 15 Public sector publications Sustainability publications Member firm publications Non English publications Third party publications IFRS e learning Info Revenue recognition On this page you will find links to our publications around understanding and implementing IFRS 15 Revenue from Contracts with Customers Implementing IFRS 15 This series of guides is intended to provide an overview of applying IFRS 15 within given sectors The guidance provided is not intended to be exhaustive but aims to highlight some of the potential issues to consider and to indicate how those issues might be approached Latest publications Implementing IFRS 15 Revenue from Contracts with Customers A practical guide to implementation issues for the aerospace and defence industry 31 Mar 2015 Implementing IFRS 15 Revenue from Contracts with Customers A practical guide to implementation issues for the travel hospitality and leisure sector 26 Mar 2015 Implementing IFRS 15 Revenue from Contracts with Customers A practical guide to implementation issues for the industrial products and services sector 09 Mar

    Original URL path: http://www.iasplus.com/en/tag-types/global/special-topics/revenue-recognition (2016-02-10)
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  • IASB says TRG not scheduled to meet again
    now of the view that stakeholders need to know that they can continue their implementation process with the confidence that IFRS 15 will not be subject to further changes Accordingly the Board does not plan to schedule further meetings of the IFRS constituents of the TRG However the TRG will not be disbanded and will be available for consultation by the Board if needed In addition there is still scope for IFRS stakeholders to submit issues through the website The IASB also notes that it will continue to collaborate with the FASB and will monitor any discussions that the FASB may have in the future with the US GAAP constituents of the TRG However the IASB also stresses that companies reporting using IFRS standards are not required to consider pronouncements or public discussions of the FASB For additional information please see our meeting notes and the press release on the IASB website Related Topics Resources International Accounting Standards Board IASB Joint Transition Resource Group for Revenue Recognition Standards IFRS 15 Revenue from Contracts with Customers Related news Pre meeting summaries for the February IASB meeting 09 Feb 2016 2016 IFRS Red Book coming in March 09 Feb 2016 Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 February 2016 IASB meeting agenda posted 05 Feb 2016 All Related Related Publications Deloitte comment letter on proposed amendments to IFRS 4 08 Feb 2016 IFRS in Focus IASB issues amendments to IAS 7 Statement of Cash Flows requiring disclosure of changes in liabilities arising from financing activities 01

    Original URL path: http://www.iasplus.com/en/news/2016/01/trg/view (2016-02-10)
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  • Heads Up — The new revenue standard — Adoption and transition observations
    retroactively recalculating revenue balances when the new revenue standard becomes effective Over the past few months Deloitte has sponsored various seminars on the new revenue standard and obtained feedback from participants through questionnaires 4 Figure 1 shows survey respondents thoughts regarding the transition method they may adopt Figure 1 Which Method Will You Use to Adopt the New Revenue Standard Only 14 percent of respondents indicated an affirmative decision on a method of adoption with 10 percent noting they would adopt the new revenue standard on a full retrospective basis Overwhelmingly respondents had not reached a definitive conclusion regarding selection of a transition method Of the 86 percent that had not affirmatively responded on which method they would use for adoption 49 percent indicated a preliminary leaning to one of the new revenue standard s transition methods Editor s Note Like Deloitte s above survey results informal polling during the 2015 AICPA Conference indicated that most preparers had still not decided which transition method to use and that the percentages of those with a preliminary leaning toward the full retrospective method and those with a preliminary leaning toward the modified retrospective method were now relatively even In deciding which transition method to use companies should confer with key stakeholders and gain an understanding of the methods used by peer companies The greater the differences expected between a company s legacy revenue accounting and accounting for revenue under the new standard the more the company may want to consider using the full retrospective transition method Under this method the company would reflect revenue consistently for all years presented in its financial statements rather than for only the latest year presented as is permitted under the modified transition method In addition entities are permitted to early adopt the new revenue standard However under U S GAAP early adoption is limited to the effective date before the standard s deferral As shown in Figure 2 nearly 60 percent of respondents to Deloitte s survey do not plan to early adopt the new standard Figure 2 Will You Early Adopt the New Revenue Standard Editor s Note At the 2015 AICPA Conference members of a revenue panel noted that early adoption may be difficult given the current status of implementation efforts continued diversity in practice and the ongoing issuance of clarifying guidance by the FASB and IASB Accounting Processes and Internal Controls Management will need to exercise significant judgment in applying certain aspects of the new revenue standard s requirements including those related to the identification of performance obligations and allocation of revenue to each performance obligation Accordingly to comply with the new revenue standard s new accounting and disclosure requirements entities will have to 1 document new or different judgments and 2 gather and track information that they may not have previously monitored The systems and processes associated with such information may need to be modified to support the capture of additional data elements that may not currently be supported by legacy systems Further to ensure the effectiveness of internal controls over financial reporting management will want to assess whether it should revise existing or implement additional controls In assessing the effect of applying the new revenue standard on systems processes and internal controls entities may need to consider questions such as the following What processes should entities implement to identify all goods and services in a contract with a customer How will entities estimate the stand alone selling price for contracts involving multiple goods or services How will entities ensure consistency of judgments in identifying performance obligations estimating stand alone selling prices and progress toward completion What systems processes and controls are necessary to reliably estimate variable consideration and determine whether it is probable that a significant reversal of revenue will not occur Will entities need new processes and controls to identify and capitalize contract costs that would be considered incremental Will entities need to implement new processes and controls to periodically review contract costs and to test capitalized amounts for recoverability or impairment When should new policies and procedures be designed and implemented Despite the potential for significant changes to systems processes and internal controls many respondents to Deloitte s survey indicated the following about their current state of readiness to implement the new revenue standard Figure 3 Have You Started to Implement the New Standard Figure 4 Have You Established a Budget for Implementation Figure 5 Do You Expect the New Standard to Have a Material Impact Only 25 percent of respondents believed that the new revenue standard would not have a material impact on their financial statements In comparison 75 percent of respondents indicated the standard would or could have a material impact on their financial statements However 43 percent of respondents have not started to implement the new revenue standard and of the respondents that have started most indicated that they are in the very early phases of their implementation process In addition only 13 percent of respondents indicated that they have formally established a budget for implementing the new revenue standard Editor s Note At the 2015 AICPA Conference Ashley Wright a professional accounting fellow in the OCA noted that all companies should expect some degree of change to their accounting processes controls judgments and disclosures as a result of implementing the new revenue standard Ms Wright thus suggested that companies take a fresh look at their accounting policies and practices and have candid discussions with their audit committees executive management and auditors about the status of implementation plans and impact assessments A change management project plan including an assessment of resources needed to execute that plan should be a priority of company management and audit committees Implementation Resources Available to Preparers The TRG has provided a public forum related to the new revenue standard and has addressed more than 50 implementation questions since its inception For more information about the TRG see Deloitte s TRG Snapshot newsletters In addition the AICPA has 16 industry task forces

    Original URL path: http://www.iasplus.com/en/publications/us/heads-up/2016/issue-2/view (2016-02-10)
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  • IASB publishes editorial corrections
    2015 The IASB has published a batch of editorial corrections to stand alone standards Editorial corrections to stand alone Standards Exposure Draft IFRS Practice Statement Application of Materiality to Financial Statements IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers Editorial corrections do not change the meaning or application of pronouncements but instead correct inadvertent errors The editorial corrections can be viewed on the editorial corrections page of the IASB s website Related Topics Resources IASB editorial corrections Standards IFRS 9 Financial Instruments Conceptual Framework for Financial Reporting 2010 IFRS 15 Revenue from Contracts with Customers Related news Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 EU endorsement of IFRS 9 now expected in the second half of 2016 04 Feb 2016 FASB constituents of the TRG will continue to meet 02 Feb 2016 EBA launches an impact assessment of IFRS 9 on banks 28 Jan 2016 All Related Related Publications Deloitte comment letter on proposed amendments to IFRS 4 08 Feb 2016 EFRAG endorsement status report 3 February 2016 04 Feb 2016 Insurance webcast 55 The proposed solution to the de coupling of IFRS 9 and IFRS 4 Phase II 03 Feb 2016 Deloitte comment letter on tentative agenda decision on IFRS 9 and IAS 39 Derecognition of financial assets 19 Jan 2016 All Related Related Discussions IFRS 9 Transition issues relating to hedging 12 Jan 2016 IFRS 9 Determining hedge effectiveness for net investment hedges 11 Nov 2015 IFRS 9 IAS 28 Is measurement of long term interests in associates and

    Original URL path: http://www.iasplus.com/en/news/2015/12/editorial-corrections/view (2016-02-10)
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  • IFRS Foundation releases training material for IFRS 9 and IFRS 15
    material provided now is for IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers Both standards are effective for annual reporting periods beginning on or after 1 January 2018 with early application permitted The material for IFRS 9 is four parts 1 Objective scope recognition and derecognition 2 Classification and measurement 3 Impairment and 4 Hedging For IFRS 15 a synopsis that highlights the main requirements of the standard accompanies the slide presentation All materials provided as part of the education initiative can be used free of charge It can be accessed through the press release on the IASB website Related Topics Resources Research and education IFRS Foundation Standards IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments Related news Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 IFRS Foundation Trustees hold January 2016 meeting 05 Feb 2016 EU endorsement of IFRS 9 now expected in the second half of 2016 04 Feb 2016 FASB constituents of the TRG will continue to meet 02 Feb 2016 All Related Related Publications Deloitte comment letter on proposed amendments to IFRS 4 08 Feb 2016 EFRAG endorsement status report 3 February 2016 04 Feb 2016 Insurance webcast 55 The proposed solution to the de coupling of IFRS 9 and IFRS 4 Phase II 03 Feb 2016 Deloitte comment letter on tentative agenda decision on IFRS 9 and IAS 39 Derecognition of financial assets 19 Jan 2016 All Related Related Discussions IFRS 9 Transition issues relating to hedging 12 Jan 2016 IFRS 9 Determining

    Original URL path: http://www.iasplus.com/en/news/2015/11/training-material-ifrs-9-ifrs-15/view (2016-02-10)
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  • IFRS in Focus — Joint Meeting on Revenue
    publications Non English publications Third party publications IFRS e learning Info IFRS in Focus Joint Meeting on Revenue Published on 18 Nov 2015 This newsletter summarises the November meeting of the IASB and FASB joint revenue transition resource group Download Related Topics Publication series IFRS in Focus Resources Financial Accounting Standards Board FASB International Accounting Standards Board IASB Joint Transition Resource Group for Revenue Recognition Projects Clarifications to IFRS 15 Issues emerging from TRG discussions Standards IFRS 15 Revenue from Contracts with Customers Related news Pre meeting summaries for the February IASB meeting 09 Feb 2016 2016 IFRS Red Book coming in March 09 Feb 2016 Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FASB adds four projects to research agenda 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 All Related Related Publications Deloitte comment letter on proposed amendments to IFRS 4 08 Feb 2016 Heads Up FASB proposes guidance on cash flow classification 04 Feb 2016 IFRS in Focus IASB issues amendments to IAS 7 Statement of Cash Flows requiring disclosure of changes in liabilities arising from financing activities 01 Feb 2016 Heads Up FASB proposes guidance on presentation of net periodic benefit cost and disclosures related to defined benefit plans 28 Jan 2016 All Related Related Discussions Revenue from contracts with customers 20 Jan 2016 Revenue from contracts with customers joint IASB FASB meeting 16 Dec 2015 Revenue from contracts with customers 15 Dec 2015 Revenue from contracts with customers 22 Sep 2015 All Related Related Dates February 2016 IASB meeting 16 Feb 2016 17 Feb 2016 London

    Original URL path: http://www.iasplus.com/en/publications/global/ifrs-in-focus/2015/trg-nov/view (2016-02-10)
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  • TRG discusses implementation of new revenue standard
    the FASB s and IASB s joint revenue transition resource group TRG discussed potential issues related to implementing the boards new revenue standard Topics dis cussed at the meeting in cluded Customer options for additional goods and services Pre production activities Licenses Specific application issues related to restrictions and renewals Whether fixed odds wagering contracts are inside or outside the scope of ASC 606 For more in for ma tion see De loitte s TRG Snap shot Related Topics Resources Financial Accounting Standards Board FASB International Accounting Standards Board IASB Joint Transition Resource Group for Revenue Recognition Projects Clarifications to IFRS 15 Issues emerging from TRG discussions Standards IFRS 15 Revenue from Contracts with Customers Related news Pre meeting summaries for the February IASB meeting 09 Feb 2016 2016 IFRS Red Book coming in March 09 Feb 2016 Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard 08 Feb 2016 We comment on the IASB s proposed amendments to IFRS 4 08 Feb 2016 FASB adds four projects to research agenda 08 Feb 2016 FEE briefing paper on the endorsement of IFRS 9 08 Feb 2016 All Related Related Publications Deloitte comment letter on proposed amendments to IFRS 4 08 Feb 2016 Heads Up FASB proposes guidance on cash flow classification 04 Feb 2016 IFRS in Focus IASB issues amendments to IAS 7 Statement of Cash Flows requiring disclosure of changes in liabilities arising from financing activities 01 Feb 2016 Heads Up FASB proposes guidance on presentation of net periodic benefit cost and disclosures related to defined benefit plans 28 Jan 2016 All Related Related Discussions Revenue from contracts with customers 20 Jan 2016 Revenue from contracts with customers joint IASB FASB meeting 16 Dec

    Original URL path: http://www.iasplus.com/en/news/2015/11/trg-meeting/view (2016-02-10)
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  • TRG Snapshot — Joint meeting on revenue: November 2015
    staffs rejected an alternative view that the termination penalties represent options that create material rights Issue 3 When optional purchases would be considered separate performance obligations As indicated in TRG Agenda Paper 48 the staffs noted two views Views A and B Proponents of View A maintain that options for goods or services like other contractual rights and obligations must be legally enforceable i e enforceable as a matter of law as discussed in ASC 606 10 25 2 paragraph 10 of IFRS 15 Proponents of View B believe that j udgment is required to determine if the legal options represent in substance promised goods or services in the contract Under View B an entity would consider economic compulsion exclusivity of the arrangement i e whether the customer can obtain the goods or services from other suppliers and other circumstances when assessing whether optional purchases should be reflected in the transaction price of the current contract The staffs believed that View A is consistent with the new revenue standard given that the standard does not require an entity to estimate the transaction price of future contracts that it will enter into with its customers unless there are legal enforceable rights or options for future goods and services that are material rights See TRG Agenda Paper 48 for additional information Summary TRG members discussed the issue of whether and if so when an entity would be required to estimate future purchases in a current contract with a customer They reiterated the staffs view that the new revenue standard does not require an entity to estimate the transaction price of future contracts into which it will enter with a customer In addition they generally agreed with the framework outlined in TRG Agenda Paper 48 under which an entity would perform an evaluation of the nature of its promises in a contract with a customer including a careful evaluation of the enforceable rights and obligations in the present contract not future contracts That is there is a distinction between 1 customer options and 2 uncertainty that is accounted for as variable consideration Customer options are predicated on a separate customer action namely the customer s decision to exercise the option which would not be embodied in the present contract unless an option is a material right such options would not factor into the accounting for the present contract Uncertainty is accounted for as variable consideration when the entity has enforceable rights and obligations under a present contract to provide goods or services without an additional customer decision The TRG also generally agreed with the staffs view on Issue 3 that enforceable rights and obligations in a contract are only those for which the entity has legal rights and obligations under the contract and would not take economic or other penalties into account e g 1 economic compulsion or 2 exclusivity because the entity is the sole provider of the goods or services which may make the future deliverables highly probable of occurring Further the TRG generally agreed with the staffs view on Issue 2 that a substantive termination penalty would provide evidence of enforceable rights and obligations throughout the contract term e g define the duration of the contract 7 However there was substantial debate about what would constitute a substantive penalty especially because some TRG members could not conclude that the penalties described in the staffs examples were substantive Rather than trying to define substantive the TRG agreed that an entity would need to use significant judgment when construing the term Accordingly TRG members suggested that an entity s judgment could be informed by data such as how frequently a customer opts to incur a penalty For example a high incidence of customers who choose to pay a penalty to cancel a contract would most likely indicate that the penalty is not substantive In addition there was discussion that compared the thresholds for identifying a material right and a substantive penalty Some TRG and board members observed that in general the threshold for identifying a substantive penalty should be higher than the threshold for identifying a material right Topic 2 Preproduction Activities Background ASU 2014 09 8 IFRS 15 creates new guidance on fulfillment costs that are outside the scope of other Codification topics including costs related to an entity s preproduction activities The new revenue standard s Basis for Conclusions indicates that in developing such cost guidance the boards did not intend to holistically reconsider cost accounting Rather they aimed to Fill gaps resulting from the absence of superseded guidance on revenue and certain contract costs Improve consistency in the application of certain cost guidance Promote convergence between U S GAAP and IFRSs However stakeholders in various industries have raised questions about how an entity should apply the new cost guidance when assessing preproduction activities including questions related to the scope of the guidance i e the costs to which such guidance would apply In particular stakeholders have asked the following Question 1 How should an entity assess whether preproduction activities are a promised good or service Some stakeholders have questioned whether certain preproduction activities represent promised goods or services in a contract with a customer because such a determination could affect the timing of revenue recognition In a manner consistent with the requirements of the new revenue standard and prior TRG meeting discussions 9 the FASB and IASB staffs stated that an entity should first evaluate the nature of its promise to the customer and in doing so consider whether a preproduction activity is a promised good or service or a fulfillment activity While acknowledging that it may be difficult to determine whether a preproduction activity is a promised good or service the staffs noted that an entity should assess whether the preproduction activity transfers control of a good or service to the customer Further the staffs suggested that the criteria for determining whether an entity transfers control of a good or service over time 10 may be helpful in this assessment For example if an entity determines that a preproduction activity transfers control of a good or service to a customer over time it should include the preproduction activity in its measure of progress toward complete satisfaction of its performance obligation s Question 2 How should an entity reporting under U S GAAP account for preproduction costs currently accounted for in accordance with guidance in ASC 340 10 Some stakeholders reporting under U S GAAP engage in long term supply arrangements and have expressed concerns that the cost guidance in ASU 2014 09 changes the assessment of whether preproduction costs currently accounted for under ASC 340 10 should be capitalized or expensed The FASB staff noted that the analysis for determining whether to capitalize or expense costs incurred for preproduction activities is separate from the assessment of whether preproduction activities represent promised goods or services in a contract i e separate from the analysis discussed in Question 1 above Accordingly since the new revenue standard does not amend the guidance in ASC 340 10 the FASB staff thinks that entities that currently account for preproduction costs in accordance with ASC 340 10 should continue to do so after the new revenue standard becomes effective Question 3 Are preproduction costs for contracts previously within the scope of ASC 605 35 considered to be within the scope of ASC 340 10 or ASC 340 40 Some stakeholders reporting under U S GAAP have questioned the accounting for preproduction costs incurred to deliver contracts currently accounted for under ASC 605 35 rather than ASC 340 10 The FASB staff noted that after the new revenue standard becomes effective preproduction activities related to contracts currently within the scope of ASC 605 35 should be accounted for in accordance with ASC 340 40 because 1 the new revenue standard will supersede ASC 605 35 and its related cost guidance and 2 ASC 340 10 does not currently provide guidance on costs related to such contracts See TRG Agenda Paper 46 for additional information Summary For each issue discussed TRG members generally agreed with the staffs analyses and acknowledged that in certain situations it will be challenging for an entity to determine whether a preproduction activity transfers control of a good or service to the customer As a result an entity will need to use judgment to make those determinations and some diversity in practice may result In addition TRG members in the United States noted that implementation questions related to whether and if so how to apply ASC 340 10 may be resolved if that guidance is either 1 deleted or 2 clarified to enable entities to understand how to apply it in a manner consistent with the control principle in the new revenue standard Topic 3 Specific Application Issues Related to License Restrictions and Renewals Background The new revenue standard includes guidance on assessing whether a license of intellectual property IP is a right to use the IP which results in the recognition of revenue at a point in time or a right to access the IP which results in the recognition of revenue over time In addition the FASB has proposed clarifications to the guidance in ASU 2014 09 11 and the IASB has proposed changes to the Basis for Conclusions on IFRS 15 Notwithstanding the proposed amendments which are intended to clarify rather than change the guidance stakeholders have raised the following issues related to point in time licenses Issue 1 Renewals of time based right to use point in time licenses In their discussion of this issue the FASB and IASB staffs noted an example in which a customer renews a three year point in time license six months before its expiration Stakeholders have questioned what constitutes the appropriate recognition point for the extension specifically which of the following views is correct View A under which revenue from the renewal license would be recognized when the renewal period begins i e after the original three year license ends specifically at the start of the renewal period in Year 4 12 View B under which such revenue would be recognized upon agreement of the renewal license i e six months before the original license expires For the arrangement discussed in the example the staffs believed that revenue should be recognized in accordance with View B because the customer 1 did not receive any additional rights and 2 previously obtained control of the license That is the term extension represents a change in an attribute of the license that had already been transferred to the customer Issue 2 Distinct rights in a contract In examining this issue the staffs noted two examples of multiyear point in time licenses containing restrictions on the use of the underlying IP geographical restrictions in the first example and product class restrictions in the second In each example the customer was permitted to expand the use of the underlying IP only after a defined period within the license s term the staffs referred to release of these restrictions as staggered rights Some stakeholders believe that there is a single license in both examples because the entity only has the responsibility to make the underlying IP available at the beginning of the license period and the restrictions cited in the examples are attributes that should not be considered under the new revenue standard View A Other stakeholders believe that in each of the two examples there are two distinct licenses primarily because additional rights are subsequently conveyed to the customer View B The staffs agreed with View B i e the conclusion that the customer in each example was granted multiple licenses because the rights that accrue subsequently are distinct from the rights that accrue to the customer initially They noted that the guidance cited to support View A ASC 606 10 55 64 paragraph B62 of IFRS 15 was not intended to circumvent the guidance supporting View B ASC 606 10 55 63 paragraph B61 of IFRS 15 Issue 3 Distinct rights added through a modification The staffs began their analysis of Issue 3 by referring to amended versions of the examples used in their discussion of Issue 2 In the amended examples the expansion of the customer s use of IP was not part of the original license agreements but resulted from modifications to the original contracts Further the modifications did not meet the requirements of the contract combination guidance in the new revenue standard The staffs noted three views on how an entity would account for the modifications in the amended examples Views A B and C Proponents of View A believe that the modifications are to the single original license and that revenue would accordingly be recognized on the date the modification is made if 1 the modifications to add rights take place after the customer has begun to benefit from the rights in the original contract and 2 the entity is not required to provide additional IP to the customer Their basis for this conclusion is that the l icensor has no further performance obligation In contrast proponents of View B believe that the modifications create a new agreement or performance obligation and that the licensor would therefore recognize revenue for the additional rights only when the customer benefits from them Under View C which is the view that the staffs believed to be the most consistent with the new revenue standard the entity would assess and account for the contract modifications in the manner applicable to any other contract modification Accordingly as stated in TRG Agenda Paper 45 if the incremental distinct rights are priced at their standalone selling price then the entity applies the new contract modification guidance in ASC 606 10 25 12 paragraph 20 of IFRS 15 Conversely if the incremental distinct rights are not priced commensurate with their standalone selling price then the entity applies the modification guidance in ASC 606 10 25 13 a paragraph 21 a of IFRS 15 Issue 4 Accounting for a customer s option to purchase or use additional copies of software In discussing this issue the staffs referred to three examples of point in time license arrangements in which a customer paid a flat fee for 1 software rights for a specified number of employees and 2 options to add additional employees at a later date on the basis of a per user fee The staffs noted three prevailing views on how to account for the additional users Views A B and C Under View A an entity would treat the options to acquire the additional software rights in a manner similar to how it would treat options to purchase additional goods because they are right to use or point in time licenses Accordingly the entity would assess whether the options grant the customer a material right if they do the entity would allocate a portion of the transaction price to the options and recognize the related revenue when the options are exercised or expire Under View B the additional rights would be considered incremental usage of the software because rather than changing the characteristics or functionality of the software they affect only the amount of usage already controlled by the customer Accordingly proponents of View B would account for the additional usage in accordance with the new revenue standard s guidance on usage or sales based royalties i e as variable consideration Supporters of View C would employ an approach that applies View A to one of the examples and View B to the other two For the examples discussed the staffs supported View A because they believed that there is no basis in the new revenue standard for dispensing with an assessment of whether options in a contract represent a material right The staffs rejected View C because it is inconsistent with the new revenue standard They also rejected View B but acknowledged that some software entities reporting under U S GAAP may prefer it since it would not require them to perform additional assessments that might otherwise be required under the new revenue standard because the new standard supersedes guidance under U S GAAP that currently permits software entities to forgo assessing whether additional rights to previously delivered software constitute a discount that is more than insignificant See TRG Agenda Paper 45 for additional information Summary Because inconsistencies have been identified in both the guidance of the new revenue standard and the boards proposed amendments to the standard TRG members noted that some stakeholders have questioned when characteristics of a license should be treated as a right that would define whether a license is distinct i e a separate license from an attribute of a single license TRG members generally agreed with the staffs view that the evaluation of whether an entity has provided a single license of IP or multiple licenses to a customer either in a single contract or through contract modifications would depend on whether it has granted the customer additional rights i e new or expanded rights However the TRG generally did not support or could not understand the basis for why the time based restriction in Issue 1 would be treated differently from the geographical or product restriction in Issue 2 That is many TRG members viewed the extension of time i e through the contract renewal as granting a customer an additional right rather than the continued use of the same rights under a license that the entity already delivered to the customer and from which the customer is currently benefiting One TRG member noted that one reason why time may be viewed differently is the new revenue standard s requirement to assess whether a license grants the customer a right to use or a right to access the underlying IP In effect time is considered in the initial assessment and once an entity concludes that the license is a right to use i e point in time license time would not be

    Original URL path: http://www.iasplus.com/en/publications/us/trg-snapshot/revenue-nov-2015/view (2016-02-10)
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