The proposal, Technical Corrections and Improvements to Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), addresses four issues that arose from a standard jointly issued in 2014 by the FASB and the International Accounting Standards Board.
The revenue recognition standard will go into effect for public companies for annual reporting periods beginning after Dec. 15, 2017 (2018 for calendar-year public companies) and interim periods therein. Nonpublic companies will be required to adopt the standard for annual reporting periods beginning after Dec. 15, 2018, and interim periods within annual reporting periods beginning after Dec. 15, 2019.
Comments on the proposal should be submitted by Oct. 4 through the FASB’s website or via other ways indicated in the exposure draft.
The FASB had proposed nine technical corrections and improvements to the standard in May 2016, which the board still is considering. This latest proposal includes four more issues brought to the board’s attention after the first consideration of the May proposal.
Here’s a snapshot of the four additional correction issues.
Loan guarantee fees. Topic 606 identifies a scope exception for guarantees (other than product or service warranties) within the scope of Topic 460, Guarantees. Thus, the proposed amendments clarify that guarantee fees within the scope of Topic 460 (other than product or service warranties) don’t fall within the scope of Topic 606.
Contract asset vs. receivable. Stakeholders were concerned that Example 38, Case B in Topic 606 indicates that an entity can’t record a receivable before its due date. The proposed amendments would provide a better link between the example’s analysis and the receivables presentation guidance in Topic 606.
Refund liability. Stakeholders said that Example 40 in Topic 606, intended to illustrate the recognition of a receivable and a refund liability, indicates that a refund liability should be shown as a contract liability. The proposed amendments would remove reference to the term “contract liability” from the journal entry in Example 40.
Advertising costs. The proposal would reinstate guidance on the accrual of advertising costs.
Update 2014-09 superseded much of the guidance in Subtopic 340-20, OtherAssets and Deferred Costs—Capitalized Advertising Costs, because it would have conflicted with new cost capitalization guidance in Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. Therefore, an entity that previously capitalized advertising costs in accordance with the guidance in Subtopic 340-20 would apply the capitalization guidance in Subtopic 340-40 upon the adoption of Update 2014-09. Guidance on when to recognize a liability had been included within Subtopic 340-20 and was superseded by Update 2014-09.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.