Although major changes to the new revenue recognition are not expected, the FASB continues to make adjustments to the standard and has just released additional proposed guidance to ASC Topic 606, Revenue from Contracts with Customers. The exposure draft provides corrections to clarify or correct four issues identified by stakeholders: loan guarantee fees, contract asset versus receivable, refund liability and advertising costs.
Loan Guarantee Fees
ASC Topic 606 identifies a scope exception for guarantees that meet the guidance of ASC Topic 460, Guarantees. Feedback on recent amendments to the standard raised questions about whether fees from financial guarantees should be included as part of ASC Topic 606. The proposed update would clarify that they are not included. The only forms of guarantees, within the scope of ASC Topic 460 Guarantees, that are accounted for under the new revenue recognition guidance are those that are for product or service warranties.
Contract Asset versus Receivable
One of the examples outlined in ASC Topic 606 appeared to contradict how the standard defined the difference between receivables and contract assets. Some interpreted the example to imply that a right to receive consideration could only be presented as a receivable subsequent to the due date. The proposed update clarifies the example, showing that a right to receive consideration is presented as a receivable when the entity has an unconditional right, the definition of which excludes the passage of time, to receive consideration.
Refund Liability
Another example raised questions among FASB stakeholders about whether a refund liability should be characterized as a contract liability. The proposed amendments address the concern by removing the term "contract liability" from the guidance's refund liability example. Some refund liabilities are monetary in nature and others are nonmonetary. When performing foreign currency translations, the nature of a liability as monetary or nonmonetary affects the exchange rate utilized. When the example referred to a refund liability as a contract liability, it implied that all refund liabilities were nonmonetary in nature. The classification of whether a refund liability is nonmonetary (contract liability or not) is expected to be made on the basis of facts and circumstances.
Adverting Costs
Much of the guidance in ASC Subtopic 340-20, Other Assets and Deferred Costs—Capitalizing Advertising Costs was replaced by the new revenue recognition standard. Instead, entities would follow the guidance in ASC Subtopic 340-40 Other Assets and Deferred Costs—Contracts with Customers, but this left stakeholders with questions on when to recognize a liability for advertising costs. The exposure draft proposes that the guidance on the accrual of advertising costs in ASC Subtopic 340-20 be reinstated.
Next Steps
If approved, the amendments would take effect along with the new standard. Comments on the exposure draft are due to the FASB by October 4, 2016.
For additional comments, questions or concerns about the proposed updates, contact Mark Winiarski of MHM's Professional Standards Group. Mark can be reached at mwiniarski@cbiz.com or 816.945.5614.
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