The Board chose not to expand the scope of the project to include arrangements structured within a legal entity (such as joint ventures). The Board clarified that a contract that is not completed in the context of those expedients, as written in paragraph 808-10-65-2(e), refers to an arrangement for which all (or substantially all) of the revenue and expenses were recognized in accordance with guidance that was in effect before the date of initial application. 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. Contingent consideration recognized should be included in the initial cost of the assets acquired. A nonmonetary exchange shall be measured based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value as discussed in paragraph 360-10-40-4) of the nonmonetary asset(s) relinquished, and not on the fair values of the exchanged assets, if any of the following conditions apply: a. %R&"(kXDe-ERBlQ5V`D!%|ekHd?iwQKjEN,DBJuK,*cn 9 Sharing your preferences is optional, but it will help us personalize your site experience. The Board considered that feedback during its redeliberations of the issues addressed by the proposed Update, as described in the discussion below. 1434 0 obj <>stream See paragraphs BC31BC33 for the Boards basis for that decision. Because determining the unit of account is critical to the accounting in a collaborative arrangement, the Board decided to provide unit-of-account guidance in Topic 808 and align that guidance with the guidance in Topic 606 for distinct goods or services. Because the amendments in this Update correlate with Topic 606, an entity must have adopted Topic 606 to apply the amendments in this Update. % The guidance in Topic 808 originated from EITF Issue No. Instead, financing costs relating to the issuance of debt should be recognized as a reduction of the debt balance in accordance with. 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, ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606, {{favoriteList.country}} {{favoriteList.content}}. Q+ 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. The EITF did not provide specific recognition and measurement guidance because of the difficulty in developing a single accounting model that could be applied to the wide range of different collaborative arrangements. See, Company name must be at least two characters long. 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 remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. Copyright 2018 by Financial Accounting Foundation. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. This edition includes ASU 2021-08 (contract assets and contract liabilities from contracts with customers) and application issues related to SPACs. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. The Board acknowledged that entities currently use judgment to determine whether a transaction should be presented in the broader revenue category and that its intent was not to change that practice. PwC. ]bqi"w8=8YWf8}3aK txg^+v!a{Bhk 5YliFeT?}YV-xBmN(}H)&,# o0 It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). Consideration transferred should be allocated between the asset acquisition transaction and any separate transactions on a relative fair value basis. The Board also considered providing a nonrevenue accounting model because its decisions could result in more transactions that would need recognition and measurement guidance that does not exist in Topic 808. Select a section below and enter your search term, or to search all click Buy and sell stamps from Poland. The Board decided to permit an entity to early adopt the amendments in this Update, including adoption in any interim period, if the entity has already adopted or is concurrently adopting Topic 606. FSP Corp will contract directly with the advertising agencies and pay for the total cost of the campaign. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. +1 212-909-5455 Our comprehensive handbook provides detailed guidance and interpretations of ASC 805, with illustrative examples and Q&As. The amendments in this Update are not intended to address transactions with a collaborative arrangement participant that are directly related to sales to third parties of either participant and, therefore, do not result in changes to the presentation of those transactions. The edits focused on changes resulting from the proposed amendments and were not intended to provide additional guidance on the application of Topic 606 or Topic 808. FASB Accounting Standards Codification Manual, SEC Rules & Regulations (Title 17 Commodity and Securities Exchanges), Trust Services Principles, Criteria, and Illustrations, Principles and Criteria for XBRL-Formatted Information, Audit and Accounting Guides & Audit Risk Alerts, Other Publications, Press Releases, and Reports, Dbriefs Financial Reporting Presentations, Business Acquisitions SEC Reporting Considerations, Comparing IFRS Accounting Standards and U.S. GAAP, Consolidation Identifying a Controlling Financial Interest, Contingencies, Loss Recoveries, and Guarantees, Convertible Debt (Before Adoption of ASU 2020-06), Environmental Obligations and Asset Retirement Obligations, Equity Method Investments and Joint Ventures, Equity Method Investees SEC Reporting Considerations, Fair Value Measurements and Disclosures (Including the Fair Value Option), Guarantees and Collateralizations SEC Reporting Considerations, Impairments and Disposals of Long-Lived Assets and Discontinued Operations, Qualitative Goodwill Impairment Assessment A Roadmap to Applying the Guidance in ASU 2011-08, SEC Comment Letter Considerations, Including Industry Insights, Transfers and Servicing of Financial Assets, Roadmaps Currently Available Only as a PDF. 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. The amount of monetary assets or liabilities exchanged in an asset acquisition generally provides an objective basis for measuring the fair value of the assets acquired. Clarified 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 of the unit of account. %%EOF 2.3 Initial measurement (asset acquisitions). H\n0E EY helps clients create long-term value for all stakeholders. To clarify that transactions with collaborative arrangement participants directly related to third-party sales were not within the scope of the project, certain proposed amendments included language that reference transactions directly related to sales to third parties. 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. Several respondents questioned the Boards intent for precluding revenue presentation for transactions outside the scope of Topic 606. An entity may not adopt the amendments earlier than its adoption date of Topic 606. Example PPE 2-2 illustrates the recognition and measurement of an asset acquisition when the acquirer previously held a noncontrolling equity interest. The amendments improve comparability by allowing the presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. The Board also considered whether to provide guidance for two additional areas that were raised in the agenda request: (a) unit of account and (b) recognition and measurement guidance for transactions not within the scope of the revenue guidance (that is, nonrevenue transactions). The FASB is issuing this Update to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. 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. This Topic notes that it "only provides links to guidance on accounting for the cost of sales and services in other applicable Subtopics as the asset liability model used in the Codification generally results in the inclusion of that guidance in other Topics.". Whensome or all of the depreciation and amortization related to the manufacturing of products or the services providedby a reporting entity are excluded from the cost of sales line item, Amortization expense may result from lease transactions that are accounted for under. Others view each transaction between collaborative arrangement participants, such as an upfront payment or a cost-reimbursement payment, as a separate unit of account. However, because the Board decided not to include recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement (see further discussion in paragraphs BC31BC33), the decision to align the unit-of-account guidance to the guidance in Topic 606 for distinct goods or services is limited to the context of assessing the scope of the revenue guidance. All rights reserved. For asset acquisitions in which some or all of the consideration transferred consists of noncash assets, liabilities incurred to the seller, or equity interests issued to the seller, reporting entities should first determine whether the transaction is within the scope of other US GAAP. endobj If Company A subsequently buys the intellectual property that is subject to the patent infringement from Company B, Company A would need to assess whether some of the consideration transferred should be accounted for separate from the asset acquisition transaction for the settlement of a preexisting relationship (i.e., ascribe some of the value to the effective settlement of the lawsuit). On the basis of that information, the Board decided that the nature of the joint operating activity and the shared risks and rewards should not preclude revenue recognition according to Topic 606 in those instances. Yq:W+pM|v{ The Board received 27 comment letters in response to the proposed Update. 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. BC16. You can set the default content filter to expand search across territories. Some variation in production levels from period to period is expected and establishes the range of normal capacity. FSP Corp should therefore recognize $1,000 as a reduction of the cost of its purchases from Toy Company and, using a systematic and rational allocation approach, recognize a corresponding reduction in costs of sales when the related products are sold. Handbooks | November 2022. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. The fair value of the group of assets is $95 million. BC32. The targeted improvements in this Update clarify that when a transaction is within the scope of the guidance in Topic 606, an entity is required to apply all the provisions of Topic 606, including the disclosure requirements. S ZBF7l riQZ62=QSBa! |. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. You can set the default content filter to expand search across territories. Consider removing one of your current favorites in order to to add a new one. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Normal capacity is the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. %PDF-1.5 % 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. For non-SEC filers, ASC 855-10-25-2 indicates that subsequent events are events that occur after the balance sheet date but before the reporting entity's financial statements are available to be issued. The classification of insurance proceeds in the income statement depends on the nature of the insurance claim. 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 . (2022).". " .S01E04. . Company A acquires a 90% controlling interest in a legal entity whose only asset is a patent. If the consideration given is nonfinancial assets or in substance nonfinancial assets within the scope of Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets, the assets acquired shall be treated as noncash consideration and any gain or loss shall be recognized in accordance with Subtopic 610-20. Such footnote disclosure may be desirable for items that affect the comparability of income statements between periods. Respondents agreed that no additional disclosures are necessary. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Company name must be at least two characters long. hbbd```b``@$dLm D2hE\lU0 X2W@Nt $ Xmg` Regina Croucher. See Appendix G of the publication for a summary of the updates. BC17. c.The transaction lacks commercial substance (see the following paragraph). This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Most respondents requested that the Board permit early adoption of the amendments, and the Board agreed. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Download from EY Accounting Link # ASC 840 # leases # US GAAP 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. Company A has determined that the fair value of the noncontrolling interest is $1 million. [0p?'7l:u# YKD~2.o},P[ V p:dN#|eA^{k#l[0%8gT+ The Board concluded that no additional recurring disclosures are necessary because of the projects limited scope and because the current disclosures in Topics 606 and 808 are robust. 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. Alternatively, a creditor may report the change in present value attributable to the passage of time as interest income. endstream endobj startxref We use cookies to personalize content and to provide you with an improved user experience. The change in present value from one reporting period to the next may result not only from the passage of time but also from changes in estimates of the timing or amount of expected future cash flows. The amendments in the proposed Update included conforming edits to the four illustrative examples in Topic 808. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. US pandemic response and relief funding proactively mitigating fraud, waste and abuse, The COO Imperative: How human emotions can unlock supply chain success, 2023 Global economic outlook: Transforming uncertainty into opportunity, Select your location Close country language switcher. Advertising costs are generally presented as part of selling, general, and administrative (SG&A) expenses in a reporting entitys income statement. Company A acquires the remaining 75% interest in the legal entity for $1.5 million in cash; there were no direct transaction costs incurred. The issuance of Update 2014-09 on revenue from contracts with customers heightened the need for clarity on whether the guidance in Update 2014-09 applies to collaborative arrangements. FSP Corp would likely conclude in this fact pattern that the reimbursement does not relate to specific, incremental, and identifiable costs incurred in selling Toy Companys products. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. The revenue guidance only applies if the counterparty to the contract is a customer. Such arrangements should be accounted for separate from the asset acquisition. See. If the latter, some respondents disagreed because it would negatively affect performance measures that provide users with useful information. Therefore, the different alternatives the Board considered were taken from existing concepts in Topic 606, such as transfer of control and customer. Therefore, aligning the financial reporting requirements with Topic 606 is the most meaningful to users of financial statements. Total depreciation and amortization of long-lived assets is required to be disclosed in a reporting entitys financial statements. The observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan may change from one reporting period to the next. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. endstream endobj 1376 0 obj <>stream i8 S:HlvSfGHANN#3=b_"Y2WyI1i23"\!`TX@[lY}6QhX1VZ)}k1]-1_|;(vY RQo`e&Z`=Q+~~~J#*p*[lf$EvOdz[?vY .Rmmt(`NNM|_oE~g]`|wqZhBLSo?r|DCImT _WsFl63Z53;IQa7)amgIn/& J_s?P X[7? for under the guidance in ASC 845 will now fall under the guidance in ASC 610-20 if they do not involve a customer. Company A estimates the fair value of the services to be provided under the TSA to be $5 million. It also clarifies and enhances interpretive guidance in several areas. There is no guidance outside of a business combination for the settlement of preexisting relationships. Thereis no specific guidance within. Also, the consideration is not a reimbursement of specific, incremental, and identifiable costs incurred by FSP Corp to sell the vendors products. endstream endobj 1372 0 obj <>stream Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Using Q&As and examples, this new guide explains in detail the accounting for general employee compensation, nonretirement postemployment benefits, retirement benefits and employee stock ownership plans (ESOPs). bA|?G4l#z@(NZ}\#FF!5B^ J`6kj"^t+Vgkvow$X#L+#(]U(.-bY7\bXDG`!#!| A AV af$2-!\lA`<=a Q a~+ixzaaBdO?5a# M#1P+3>iG&H[A 1gH72Cb1[fn0)LpZfr09(%Zfv0IL.bR 1tT!lRzgn+Vd[7EzO|(OO\2( q n|8,VO,{y6/NUW'K [uLBCn20x10DY5fS ] yD@YC Hw15A1 B 411 0 obj <>/Filter/FlateDecode/ID[<308AB878F91284439A4E8CDD51F56156>]/Index[392 58]/Info 391 0 R/Length 100/Prev 303713/Root 393 0 R/Size 450/Type/XRef/W[1 3 1]>>stream Most asset acquisitions involve exchanges of cash or other monetary assets for the assets acquired and thus determining the cost of the acquisition is straightforward. Follow along as we demonstrate how to use the site. FSP Corp enters into a supplier agreement with Toy Company to purchase board games to sell through its website. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Welcome to Viewpoint, the new platform that replaces Inform. BC26. BC21. The Board also acknowledged the need to clarify the items in the agenda request on a timely basis given the effective date of Topic 606. In several areas described in the discussion below taken from existing concepts in Topic 606 the contract a. Alternatively, a creditor may report the change in present value attributable to contract! Refer to the pwc network and/or one or more of its subsidiaries or,! Controlling interest in a reporting entitys financial statements click Buy and sell stamps from.! `` @ $ dLm D2hE\lU0 X2W @ Nt $ Xmg ` Regina Croucher range of normal capacity has... Separate legal entity included conforming edits to the pwc network and/or one or of... Endobj startxref We use cookies to personalize content and to provide you with an improved user experience