FASB makes additional corrections to new revenue guidance
FINANCIAL REPORTING INSIGHTS |
The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The ASU makes the following changes, among others, to the new revenue recognition guidance added to the FASB’s Accounting Standards Codification by ASU 2014-09:
- Loan guarantee fees. ASU 2016-20 clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product or service warranties) are not within the scope of Topic 606.
- Contract costs – impairment testing. The ASU clarifies that when performing impairment testing of capitalized contract costs, an entity should (a) consider expected contract renewals and extensions and (b) include both the amount of consideration it already has received but has not recognized as revenue and the amount it expects to receive in the future.
- Provision for losses on construction-type and production-type contracts. The ASU requires that the provision for losses on construction-type and production-type contracts be determined at least at the contract level. However, the ASU allows an entity to determine the provision for losses at the performance obligation level as an accounting policy election.
- Disclosure of remaining performance obligations. The ASU provides optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity is not required to estimate variable consideration to recognize revenue. The ASU also expands the information that is required to be disclosed when an entity applies one of the optional exemptions.
- Disclosure of prior-period performance obligations. The ASU clarifies that the disclosure of revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods applies to all performance obligations and is not limited to performance obligations with corresponding contract balances.
The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020.
Further information regarding the new revenue recognition guidance is available in our: