United States

Accounting for multiple-deliverable revenue arrangements

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Vendors often provide multiple products or services to their customers as part of a single arrangement or a series of related arrangements. These deliverables may be provided at different points in time or over different time periods. As a simple example, a vendor may enter into an arrangement with a customer to deliver and install a tangible product along with providing one year of maintenance services. In this arrangement, there are three deliverables: (1) the product, (2) installation and (3) maintenance services. Issues often arise regarding how and whether to separate these deliverables and how to allocate the overall arrangement consideration. Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements, of the Financial Accounting Standards Board’s Accounting Standards Codification (ASC) provides the guidance that should be followed in accounting for this and many other revenue arrangements with multiple deliverables.

While ASC 605-25 has been in effect for some time, many application issues continue to arise in practice – from recognizing that a multiple-deliverable arrangement should be accounted for in accordance with ASC 605-25 to applying the provisions of ASC 605-25 in an appropriate manner. These practice issues, if not appropriately addressed, could have significant consequences on a vendor’s financial statements, including a misstatement of the vendor’s revenue for the period. We have prepared Accounting for multiple-deliverable revenue arrangements to be used as a first-line resource in addressing some of these practice issues.

UPDATE: In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board issued substantially converged final standards on revenue recognition. The FASB’s Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), provides a robust framework for addressing revenue recognition issues and will replace almost all existing revenue recognition guidance in current U.S. generally accepted accounting principles upon its effective date. Included in the revenue recognition guidance that will be superseded is the guidance in ASC 605-25 on how to account for multiple-deliverable revenue arrangements. While there are some similarities between the guidance in ASC 605-25 and the guidance in ASC 606 related to accounting for multiple-deliverable revenue arrangements, there are also some significant differences. Detailed discussion of the guidance in ASC 606, its effective date and the differences it will bring to the accounting for multiple-deliverable revenue arrangements is provided in our white paper, Revenue recognition: A whole new world.

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