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Recap: Accounting and auditing update for consumer products companies


What are some of the key FASB Accounting Standards Updates (ASUs) affecting consumer products companies? Our presenters outlined many of the changes in a recent webcast. The presentation is part of RSM’s Consumer products issues and insights 2016–2017 webcast series.

Key takeaways

The core principle of the new revenue recognition standard 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. A high level summary of the FASB’s new revenue recognition guidance was discussed on the webcast, and some key items include:

  • For purposes of determining when to recognize revenue, the overall model is focused on the transfer of control instead of the transfer of risks and rewards of ownership
  • Collectability assessment is more complex, and the revenue recognition model used when collectability is not probable could result in delayed revenue recognition (even with respect to nonrefundable cash received)
  • Multiple-element arrangements are subject to new requirements, including the following:
    • For separation purposes: Must apply the incremental criterion, which focuses on whether a promised good or service is separately identifiable from other promised goods or services in the contract
    • For allocation purposes: In certain circumstances, discounts or variable consideration will not be allocated on a relative selling price basis to all performance obligations
  • Warranties are evaluated to determine whether they represent a performance obligation to which revenue is allocated
  • A significant financing component (e.g., when payment terms provide for deferred or advance payments) may result in the recognition of interest income or expense
  • Recognition of revenue over time or at a point in time depends on whether one or more of certain specific criteria are met
  • Licenses are evaluated to determine whether they include a right to use (point in time) or a right to access (over time) intellectual property
  • Bill-and-hold transaction criteria are less onerous
  • Contract modifications are accounted for under a comprehensive model that provides for different outcomes depending on the facts and circumstances
  • Balance sheet presentation requires separate recognition of contract liabilities, accounts receivable and contract assets
  • Disclosure requirements are significant and likely include a variety of information not historically tracked or disclosed
  • Costs related to customer contracts (e.g., costs to obtain or fulfill a customer contract) must be capitalized in certain circumstances
  • Gains and losses from the derecognition of nonfinancial assets that are not an output of the entity’s ordinary activities (e.g., real estate sales) are recognized, in large part, based on key aspects of FASB Accounting Standards Codification Topic 606

Presenters also summarized some of the changes resulting from the issuance of ASU 2016-02, Leases. For lessees, the most significant change is the requirement to record a lease liability and right-of-use asset for most leases. For lessors, one of the more significant changes is the prospective elimination of the leveraged lease accounting model. For both lessees and lessors, changes include:

  • Definition of a lease
  • Lease classification criteria
  • Definition of initial direct costs
  • Separation of lease and nonlease components
  • The accounting for related-party leases
  • Accounting for sale-leaseback transactions
  • Presentation and disclosure requirements

Finally, presenters covered a variety of other recent accounting developments, including:

  • Disclosure of uncertainties about an entity’s ability to continue as a going concern, which now is required to be evaluated through one year after the financial statements are issued (or available for issuance)
  • Simplification of the accounting for identifiable intangible assets in a business combination for private companies
  • Simplification of the presentation of debt issuance costs, which are now required to be presented as a deduction from the carrying amount of the related debt unless associated with line-of-credit arrangements
  • Simplification of the measurement of inventory
  • Simplification of balance sheet classification of deferred taxes 

Additional resources

For more information on these topics, listen to the entire Accounting & auditing update for consumer products companies webcast. In addition, you may read our related publications:

Revenue recognition: In motion

Information about finalized and pending changes to the new guidance in ASC 606, including the nature of those changes and their status.

Revenue recognition: A whole new world

A white paper that details new guidance in ASC 606, including scope, core principle, key steps, transition methods and effective dates.

Revenue recognition: Overview of ASC 606

An overview of the new guidance in ASC 606 (as amended) and highlights of the fundamental changes ASC 606 will bring.

Changes coming for consumer products revenue recognition

Learn how new guidance on revenue recognition impacts the consumer products industry.

Leases: Bring on the balance sheet

A brief and basic explanation of the new ASC 842 leases guidance highlighting what you need to know and consider now.

Leases: New accounting requirements for lessees

This white paper explains the new lease guidance applicable to lessees in Accounting Standards Update 2016-02, Leases (Topic 842).

Leases: Overview of the new guidance

An overview of the new guidance, including the requirement for lessees to recognize assets and liabilities for all but short-term leases.

Simplified accounting for private companies: Certain interest rate swaps

Summary of the private-company accounting alternative to apply a simplified hedge accounting approach to certain interest rate swaps.

FASB simplifies the presentation of debt issuance costs

Debt issuance costs related to a recognized debt liability will be presented as a direct deduction from the carrying amount of that debt liability.

Changes to simplify the measurement of inventory

Inventory within the scope of new ASU 2015-11 now is required to be measured at the lower of cost and net realizable value.

Balance sheet classification of deferred taxes

The FASB has concluded that deferred tax liabilities and assets should be classified as noncurrent in a classified statement of financial position.

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