The American Institute of CPAs (AICPA) Financial Reporting Executive Committee has released a working draft that addresses the selling and distribution fee revenue of broker-dealers as it relates to the Federal Accounting Standards Board’s new revenue recognition standard.
The draft is Broker-Dealer Issue No. 3-2, Selling and Distribution Fee Revenue. Comments are due by March 1 to the address listed in the draft.
The draft includes this background explanation: Managed accounts or other funds enter into agreements with distributors to sell shares to investors.
There are various ways that the distributors can be paid for the same service. They can be paid upfront, over a time period such as through 12b-1 fees based on a contracted rate applied to the monthly or quarterly market value of the fund, or when investors leave the fund through a contingent deferred sales charge (CDSC), or a combination.
The draft addresses upfront, ongoing and CDSC fees as distribution fees. Distributors also may face costs, such as commission charges, for the performance of sales or distribution services by their employees (as sales representatives) or third-party distributors on their behalf.
The draft addresses these issues:
- Identify a contract with a customer.
- Identify separate performance obligations.
- Determine the transaction price.
- Allocate the transaction price to performance obligations.
- Recognize revenue when or as the entity satisfies a performance obligation
- Cost recognition.