Six proposed, small-scale changes have been added to the list of updates to ASU 2014-09, Revenue from Contract with Customers (Topic 606). The exposure draft of the changes, released by the Financial Accounting Standards Board (FASB), does not materially change the five-step process for revenue recognition put in place by ASU 2014-09. The changes are designed to address six areas of implementation concern raised by the Transition Resource Group (TRG).

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In addition, the proposed amendment would allow
entities to recognize revenue on contracts that have
failed step 1 when:
• the customer has received control of the goods or
services;
• the entity has stopped transferring goods and
services to the customer and has no obligation to
transfer additional goods or services, and
• the consideration paid to the entity is considered
nonrefundable.
Presentation of Taxes Collected from the
Customer
Absent the proposed amendment, Topic 606 requires
the entity to include sales taxes in the calculation
of the transaction price under step 3 when it is the
primary obligor of the specific tax. The TRG expressed
concern that determining the sales taxes and other
amounts collected on behalf of third parties would
be costly to implement, as it would require entities
to consider all the federal, state and local jurisdiction
tax laws that may apply to the contract and also who
was obligated to pay those taxes (the customer or the
entity). The amendment would permit entities to make
an accounting policy election to exclude all sales
taxes (and other similar taxes) from the calculation of
the transaction price under step 3 of Topic 606.
Six proposed, small-scale changes have been added
to the list of updates to ASU 2014-09, Revenue from
Contract with Customers (Topic 606). The exposure
draft of the changes, released by the Financial
Accounting Standards Board (FASB), does not
materially change the five-step process for revenue
recognition put in place by ASU 2014-09. The changes
are designed to address six areas of implementation
concern raised by the Transition Resource Group
(TRG).
Collectibility Criterion
The first step in the new revenue recognition process
is to identify the contract with the customer. There are
five criteria a contract meets in order to be considered
a revenue contract. One of the criteria is that the
contract has a collectible price.
First, the proposed changes would clarify the definition
of collectibility so that an entity would consider a
contract to have a collectible price if the customer has
the ability and intention to pay the entity the promised
consideration in exchange for the transfer of goods
and services. This change is intended to qualify more
agreements as revenue contracts under the first step
of Topic 606.
October 2015
Narrow Scope Improvements Proposed to Revenue Recognition Guidance

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
Noncash Considerations
ASU 2014-09 asks that entities measure noncash
consideration at fair value, but the original language
did not specify the measurement date to be used for
the fair value analysis. Stakeholders also questioned
how the constraint on variable consideration should
be applied when the fair value of the noncash
consideration varies.
The proposed amendments specify that fair value
measurement date should be the date of the
contract’s inception. They also clarify that the variable
consideration guidance applies when the fair value of
the noncash consideration varies for reasons other
than the form of the noncash consideration.
Contract Modifications at Transition
The proposed amendment creates a practical
expedient where entities can elect to determine and
allocate the transaction price of all satisfied and
unsatisfied performance obligations in a modified
contract beginning at the earliest period presented.
This would save the entity from evaluating each
modified contract for the period prior to initial
application and allow for the benefit of hindsight.
Completed Contracts at Transition
The exposure draft clarifies that a completed contract
for purposes of transition is a contract for which all
(or substantially all) of the revenue was recognized
under legacy US GAAP before the date of initial
application. Elements of the contract that do not
affect revenue under legacy US GAAP will not have
to be considered in evaluating a contract’s level of
completion. Additionally, entities will be allowed to
apply the modified retrospective transition approach
to either all their contracts or completed contracts
only.
Technical Correction to Transition Guidance
Stakeholders raised concerns about needing to
disclose the impact of former US GAAP in the
year of adoption in accordance with required
disclosures pertaining to accounting changes when
the retrospective method has been applied. The
amendment clarifies that an entity would still need
to disclose the effect of the changes on any prior
periods retrospectively adjusted but would not have
to disclose the effect of the accounting change for the
period of adoption when the retrospective method has
been applied.
Developments Continue
As part of the exposure draft, the FASB agreed to add
items related to the adoption and transition to the new
revenue recognition guidance to its technical agenda.
Further implementation concerns and issues will likely
arise before the guidance starts to roll out in 2018, and
we will keep you up-to-date as these changes occur.
For More Information
If you have specific comments, questions or concerns
about the new revenue recognition guidance, please
reach out to Brad Hale of MHM’s Professional
Standards Group. Brad can be reached at
bhale@cbiz.com or 727.572.1400.