In May 2014, the Financial Accounting Standards Board issued new revenue recognition guidance that replaces most pre-existing revenue recognition guidance, including industry-specific guidance, in U.S. generally accepted accounting principles (GAAP). All entities in the consumer products (CP) industry whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. To assist in understanding how a CP entity could be significantly affected by the new guidance, we have prepared a white paper, Changes to revenue recognition in the consumer products industry, in which we discuss the following topics, among others:
- Shipping and handling activities
- Customer options for additional goods or services (including customer loyalty programs)
- Volume and early payment discounts and rebates
- Rights of return (including restocking fees and costs)
- Price concessions
- Slotting fees, cooperative advertising and coupons
- Whether revenue should be recognized over time or at a point in time
- When control of a promised good or service transfers to a customer
- Sales involving resellers and consignment sales
- Bill-and-hold arrangements
- Principal vs. agent considerations
- Fulfillment costs related to customer contracts and the costs to obtain such contracts
- Disclosure requirements
While the effective dates for the new guidance are staggered, they are now upon us. With limited exceptions, the new guidance was effective as of January 1, 2018 for public entities with calendar year ends. For all nonpublic entities with calendar year ends, the new guidance is effective in the year ending December 31, 2019. Time is of the essence for these entities given that implementation of the new guidance could represent a significant undertaking in many cases. Our white paper can be a valuable tool in the implementation process to help understand the application of ASC 606 to your customer contracts.
Also, for comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.