ASC 606 and certain transactions in collaborative arrangements
FINANCIAL REPORTING INSIGHTS |
Topic 808 of the FASB’s Accounting Standards Codification (ASC), “Collaborative Arrangements,” defines a collaborative arrangement as a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. ASC 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements often is based on an analogy to other accounting literature or an accounting policy election. The issuance of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), raised new questions about the interaction between ASC 808 and ASC 606.
To provide guidance on how to assess whether certain transactions between collaborative participants should be accounted for in accordance with the guidance in ASC 606, the FASB recently issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which:
- Clarifies that certain transactions between collaborative participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In these situations, all of the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements.
- Adds unit-of-account guidance in ASC 808 to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606.
- Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is not a customer.
For public business entities, ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, (a) for public business entities for periods for which financial statements have not yet been issued and (b) for all other entities for periods for which financial statements have not yet been made available for issuance. An entity may not adopt the ASU earlier than its adoption date of ASC 606.