Changes keep coming to revenue recognition accounting. The Financial Accounting Standards Board (FASB) recently proposed amendments to ASU 2014-09 Revenue from Contracts with Customers (Topic 606) that would clarify how to identify performance obligations and account for licenses for intellectual property in the new standard.
ASU 2014-09 requires entities to use a five-step approach to recognize revenue: identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when or as the entity satisfies the performance obligation. Stakeholders raised concerns about implementing the five-step approach including:
- the need to identify immaterial promised goods or services,
- how to evaluate shipping and handling activities,
- distinguishing distinct promised goods and services,
- determining whether a license promises access to an intellectual property, which is satisfied over a period of time or whether it promises use of intellectual property, which is satisfied at a point in time;
- when the guidance on sales-based or use-based royalties for licenses of intellectual property applies; and
- how time, geographical, and use restrictions on licenses of intellectual property affect how entities identify performance obligations.
Learn more in our latest MHM Messenger.