After considering feedback obtained through additional research and outreach, the Board added a project to its agenda and limited the projects scope to targeted improvements that would clarify when transactions between collaborative arrangement participants should apply the revenue guidance in Topic 606. Normal capacity refers to a range of production levels. Some stakeholders raised concerns that the guidance in Update 2014-09 appears to be inconsistent with language included in the basis for conclusions of that Update. Outreach indicated that, under current GAAP, many entities analogize to the accounting for revenue under Topic 605 or Topic 606 when accounting for transactions between collaborative arrangement participants. The amendments in this Update affect all entities that have collaborative arrangements. ASC 946-10 notes that the the Topic "only provides incremental industry-specific guidance for the entities that meet the assessment of investment company status" described in ASC 946-10-15-4 through 15-9. ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. Financial statements are "available to be issued" when they are prepared in accordance with US GAAP and the reporting entity has obtained all necessary approvals (e.g., from management . h1_4'n4PK7C[u9!+m{e:v!|xmaDqI"JFD+HsC%Vc1@pf@p!! 1 0 obj AB"& a{YH( k!9h#ADX4JJ"XTr Mt0Dz iKZ The Board decided not to add additional examples or additional aspects to the existing examples because doing so would have been beyond the projects objective and scope. $F*NdOz=fv0c.5nU2.C8se6y]xw Sharing your preferences is optional, but it will help us personalize your site experience. Company A determines that the transaction should be accounted for as an asset acquisition, as the legal entity acquired does not constitute a business. The issuance of Update 2014-09 on revenue from contracts with customers heightened the need for clarity on whether the guidance in Update 2014-09 applies to collaborative arrangements. The scope of ASC 946-605 is defined as "all . The fair value of neither the asset(s) received nor the asset(s) relinquished is determinable within reasonable limits. Unusual nature means that the event possesses a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the company. Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. Nonmonetary transactions within the scope of ASC 845, Nonmonetary Transactions Lease contracts under ASC 840 Contributions of cash and other assets, including promises to give cash, that are either made by certain entities or received by not-for-profit entities within the scope of ASC 720-25, Other Expenses: Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements, provides guidance for income statement presentation, classification and disclosures related to collaborative arrangements. All rights reserved. 845-10-05-12 The Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Subsections provide guidance for certain nonmonetary exchanges in which one entity transfers a nonfinancial asset (or assets) to a second entity in exchange for a noncontrolling ownership interest in that second entity. 825-10 Overall. The reseller receives a direct reimbursement from the vendor (or a clearinghouse authorized by the vendor) based on the face amount of the incentive. For transactions involving nonmonetary consideration within the scope of Topic 845, an acquirer must first determine if any of the conditions in paragraph 845-10-30-3 apply. Judgment is required to determine the elements of an arrangement that should be accounted for as part of the exchange transaction and elements that should be accounted for separately. BC20. Amendments to the FASB Accounting Standards Codification, Copyright by Financial Accounting Standards Board, Norwalk, Connecticut, Select a section below and enter your search term, or to search all click The Board did not expand the scope to include the accounting for transactions with collaborative arrangement participants directly related to sales to third parties because feedback from entities and accounting firms indicated that the accounting for those transactions was not challenging and was relatively consistent among entities. A creditor that measures impairment based on the present value of expected future cash flows is permitted to report the entire change in present value as bad-debt expense. If there is other guidance that is applicable to payments in collaborative arrangements, reporting entities should follow that guidance (e.g., guidance on customer payments in, Reporting entities are required to disclose the following information about collaborative agreements in the scope of. The Board rejected including within the scope of this project collaborative-type arrangements structured in a separate legal entity. The Board decided that the amendments in this Update should be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Because the amendments in this Update clarify the interaction between the scope of Topics 808 and 606, the Board also decided to require consistent presentation and prevent transactions that are outside the scope of Topic 606 from being presented as revenue. Many reporting entities choose to disclose this information as one or more lines in thestatements of operations andof cash flows. The Board received 27 comment letters in response to the proposed Update. Asset acquisitions may includecontingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met. On April 26, 2018, the FASB issued a proposed Accounting Standards Update. If the transaction does not meet any of the conditions in, If the transaction is not within the scope of, Direct transaction costs incurred by the acquirer in an asset acquisition are generally a component of the consideration transferred and are therefore capitalized as part of the cost of the assets acquired in accordance with, Debt and equity issuance costs incurred relating to an asset acquisition within the scope of other GAAP should not be capitalized as a component of the cost of the assets acquired. A material event or transaction that an entity considers to be of an unusual nature or of a type that indicates infrequency of occurrence or both shall be reported as a separate component of income from continuing operations. Please seewww.pwc.com/structurefor further details. Some reporting entities choose to report all depreciation and amortization directly charged to earnings as a separate line item in the statement of operations rather than include it in the related line items by function (e.g., cost of sales, selling and marketing, general and administrative). By explicitly providing unit-of-account guidance in the context of assessing the scope of the revenue guidance and aligning the unit-of-account guidance with Topic 606, the Board also sought to eliminate potential future diversity in determining units of account when assessing whether a collaborative arrangement is partially within the scope of Topic 606 or other Topics. Added unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) limited to when an entity is assessing the scope of Topic 606. H\j >w%PrNReby6l*s)do@q;@. How should the advertising costs reimbursed by Toy Company be recorded by FSP Corp? All rights reserved. Periodicals postage paid at Norwalk, CT and at additional mailing offices. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Example FSP 3-1, Example FSP 3-2, and Example FSP 3-3 illustrate the accounting for consideration received from a vendor. EY updates FRD on income taxes EY has updated its Financial reporting developments (FRD) publication on income taxes. In March 2015, the FASB received an agenda request asking the Board to clarify the interaction between Topic 606 and Topic 808 and to provide recognition and measurement guidance for collaborative arrangements to address certain areas of diversity. BC24. Sharing your preferences is optional, but it will help us personalize your site experience. Our FRD publication on business combinations has been updated to reflect the issuance of ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Each member firm is a separate legal entity. Such items shall not be reported on the face of the income statement net of income taxes. Effectively, the reseller is acting as the vendors agent when it provides the incentives to end consumers. EY helps clients create long-term value for all stakeholders. FSP Corps expenses for these advertisements are $2,000, and it expects to receive $1,000 from Toy Company. The full subscription rate is $283 per year. At EY, our purpose is building a better working world. BC21. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. However, we believe settlement gains and losses relating to preexisting relationships should generally be recognized in the income statement consistent with the guidance for business combinations in, For example, assume Company A is a defendant in litigation relating to a patent infringement claim brought by Company B. Consideration transferred should be allocated between the asset acquisition transaction and any separate transactions on a relative fair value basis. This chapter describes the presentation and disclosure requirements and provides examples of common related party relationships and transactions. |. uGj|] h8 Eo9C6JJ>&4h\MV u: Asking the better questions that unlock new answers to the working world's most complex issues. This content is copyright protected. w]Gpg&@fk=GBhBb| Because the amendments in this Update correlate with Topic 606, an entity must have adopted Topic 606 to apply the amendments in this Update. If a subtotal such as income from operations in presented, it shall include the amounts of those gains or losses. Are you still working? The fair value of the group of assets is $95 million. Poland stamp catalogue. Some respondents requested that the Board clarify in what sequence the unit-of-account guidance should be applied. See, Some reporting entities present gains or losses resulting from sales of businesses (that do not qualify as discontinued operations) within operating income in a two-step income statement, in accordance with. We believe the acquirer in an asset acquisition should choose one of the following accounting policy elections on the acquisition date: In the absence of guidance for previously held equity interests in an asset acquisition, other measurement considerations may be acceptable (e.g., iterative equation). The Board clarified that an entity should first determine whether the entire collaborative arrangement is a contract with a customer or whether it is entirely within the scope of other GAAP. FSP Corp should therefore recognize the $1,000 received from Toy Company as a reduction of advertising costs in its income statement. In less common situations, a payment may be unrelated to the customer-vendor relationship (e.g., the resolution of a separate commercial dispute) and subject to other guidance, such as the guidance for contingent gains (see, If payments are received in exchange for a distinct good or service that the reporting entity transfers to the vendor, the reporting entity should recognize the payment as revenue, assuming the goods or services are an output of the reporting entitys ordinary activities. The entity's future cash flows are expected to significantly change if either of the following criteria is met: a. Therefore, the Board decided not to provide recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement. Company A should recognize and measure the acquired patent at a total cost of $10.1 million, consisting of (1) $9 million of cash consideration transferred, (2) $100,000 of direct transaction costs, and (3) $1 million fair value of noncontrolling interest. Review ourcookie policyfor more information. hb```[@(q$(^uJ=-m The agenda request asked the Board to clarify if, and when, transactions in a collaborative arrangement were within the scope of the revenue guidance in Topic 606. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20. On the other hand, a reporting entity may have a patent intangible asset that is used in the production of its products. The Boards assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the benefit of improved information in financial statements. Terms of reimbursement to the reseller for the vendor's sales incentive offered to the consumer must not be influenced by or negotiated in conjunction with any other incentive arrangements between the vendor and the reseller but, rather, may be determined only by the terms of the incentive offered to consumers. Some respondents requested that the Board provide additional guidance on how to determine whether a collaborative arrangement participant is a customer. The Board decided against providing recognition and measurement guidance for transactions with collaborative arrangement participants directly related to sales to third parties as part of this project. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. By continuing to browse this site, you consent to the use of cookies. 449 0 obj <>stream FSP Corp would likely conclude in this fact pattern that the reimbursement relates to specific, incremental, and identifiable costs incurred in selling Toy Companys products. BC33. We bring together extraordinary people, like you, to build a better working world. An exchange with another entity (reciprocal transfer) that involves principally nonmonetary assets or liabilities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. It has also been updated to further enhance and clarify our interpretive guidance in several areas. The SEC staff has acknowledged that, in some cases, a reporting entity may be able to support more than one conclusion based on the existing accounting literature. Therefore, an entity may still analogize to those principles provided that the entity does not present the transaction together with revenue. There are many different types of collaborative arrangements, and the accounting for any collaborative arrangement depends on the specific negotiated terms. 4 0 obj An entity-specific value (referred to as an entity-specific measurement in FASB Concepts Statement No. Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, The accounting policy selected for reporting advertising, indicating whether such costs are expensed as incurred, or the first time the advertising takes place, The total amount charged to advertising expense for each period an income statement is presented, Information about the nature and purpose of its collaborative arrangements, Its rights and obligations under the collaborative arrangements, The accounting policy for collaborative arrangements in accordance with Topic 235. Company A has previously made an accounting policy election to analogize to the business combinations guidance in remeasuring previously held equity interests in an asset acquisition. The Board decided this to further emphasize the implications of the Boards decision to require an entity to apply all the accounting requirements in Topic 606 and to prevent diversity in how and when transactions in collaborative arrangements are presented as revenue. BC3. BC1. Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. Subsequentchanges in the recorded amount of contingent consideration should generally be recognized as an adjustment to the cost basis of the acquired assets, by analogy to. ASC 850, Related Party Disclosures, is the primary accounting guidance on this topic, coupled with certain SEC guidance. Clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context ofa unit of account. BC26. Select a section below and enter your search term, or to search all click Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. %PDF-1.5 % It specifically addresses the accounting for modifications of contracts within the scope of Topics 310 on receivables, 470 on debt, and 840 and 842 on leases and Subtopic 815-15 on . FSP Corp enters into a supplier agreement with Toy Company to purchase board games to sell through its website. Show All in One Page feature for viewing user-selected excerpts. 0 Regina Croucher. The assessment ofwhether a good or service is distinct is a two-pronged test: the good or service must be both (1) capable of being distinct and (2) separately identifiable. All rights reserved. %%EOF For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Example PPE 2-2 illustrates the recognition and measurement of an asset acquisition when the acquirer previously held a noncontrolling equity interest. Please seewww.pwc.com/structurefor further details. FSP Corp enters into a supply contract with Water Company to purchase water bottles for $100,000. Accordingly, if the consideration transferred is in the form of cash or other monetary assets, recognition and measurement of the acquired assets is based on the amount of cash or other monetary assets paid to the seller, in addition to direct transaction costs incurred. PK ;bVoa, mimetypeapplication/epub+zipPK ;bV2[ META-INF/container.xmlM OAX LE7CJHHH o/t/;y 9:B- . The FASB is issuing this Update to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. The guidance also states: A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entitys ordinary activities. However, the consideration must be for reimbursement of specific, incremental, identifiable costs incurred by the reporting entity to sell the vendor's products. <> For example, a reporting entity that provides security monitoring services may have an acquired customer-relationship intangible asset. The acquirer and seller in an asset acquisition may have a preexisting relationship before negotiations for the exchange transaction begin that is effectively settled as a result of the asset acquisition. Consider removing one of your current favorites in order to to add a new one. If the consideration transferred is in the form of liabilities incurred or equity interests issued to the seller, these amounts should generally be recognized on the acquisition date. BC11. Overview. Classification of amortization of the intangible asset in selling, general, and administrative expense may be most consistent with the nature of the asset because the intangible asset is not typically associated with providing the service to customers. 848-20 Contract Modifications. The Board ultimately decided that the scope of the revenue guidance in Topic 606 should be aligned for units of account inside and outside collaborative arrangements; that is, the revenue guidance in Topic 606 should be applied if the collaborative arrangement participant is a customer in the context of a given unit of account. <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Ultimately, the Board decided not to propose a nonrevenue accounting model for collaborative arrangements for the reasons discussed below. BC7. BC12. 07-1, Accounting for Collaborative Arrangements. Issue 07-1 defined the characteristics of a collaborative arrangement and primarily provided scope, presentation, and disclosure guidance. 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Data and technology, our purpose is building a better working asc 845 ey frd gains or losses further and!