See. ASC 848-20 notes that it "provides optional expedients for contract modifications undertaken because of reference rate reform. 449 0 obj <>stream Before the issuance of Topic 606, stakeholders indicated that revenue from collaborative arrangements may have included (1) revenue that was recognized in accordance with Topic 605, Revenue Recognition, (2) revenue that was recognized through analogy to the guidance in Topic 605, and (3) revenue that was recognized through the application of a policy election. Other respondents requested that the Board clarify whether transactions directly related to sales to third parties are within the scope of Topic 606. 1434 0 obj <>stream Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. Insight. xWMk@(H$PhjCn[=wVKil1zO3o0kpu=hl`G?gsi@0(zY}9"3L-3BgR)Obzq7 H!H\kAT$ e`ecpD'p \Me1%4Lq%,S!?71c(Qdf(s%>L BD`RV. 2.3 Initial measurement (asset acquisitions). Show All in One Page feature for viewing user-selected excerpts. Because of the proposed models flexibility, certain participants raised concerns that the model would be difficult to apply and that it may not solve many of the challenges raised about recognition. In the pre-agenda research phase, the Board considered including both collaborative arrangements within the scope of Topic 808 and arrangements with similar economics that are structured in a separate legal entity. Company A pays $9 million in cash and $100,000 in direct transaction costs. The SG&A line item frequently includes the sum of all direct and indirect selling expenses, as well as all general and administrative expenses of the reporting entity. A collaborative arrangement, as defined by the guidance in Topic 808, is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity's commercial success. The Board also acknowledged the need to clarify the items in the agenda request on a timely basis given the effective date of Topic 606. Each member firm is a separate legal entity. FSP Corp enters into a supplier agreement with Toy Company to purchase toys to sell through its website. All rights reserved. Like the depreciation or amortization of tangible long-lived assets, the amortization of intangibles may be included in operating expenses or cost of sales, depending on the use of the asset. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. By continuing to browse this site, you consent to the use of cookies. ASU 2018-18Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. The carrying value of Company As investment is $100,000 and its fair value is $500,000. See, Some reporting entities present gains or losses resulting from sales of businesses (that do not qualify as discontinued operations) within operating income in a two-step income statement, in accordance with. Terms of reimbursement to the reseller for the vendor's sales incentive offered to the consumer must not be influenced by or negotiated in conjunction with any other incentive arrangements between the vendor and the reseller but, rather, may be determined only by the terms of the incentive offered to consumers. 0 If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. Property, plant, equipment and other assets. Company A determines that the transaction should be accounted for as an asset acquisition, as the legal entity acquired does not constitute a business. Infrequent means that the event should not be reasonably expected to recur in the foreseeable future. Download now. The scope of ASC 946-605 is defined as "all . The Board clarified that its intent was to preclude presentation together with revenue accounted for under Topic 606 for those transactions outside the scope of Topic 606. BC22. Our publication is intended to help entities better understand the relief, which is codified in ASC 848, and assist them in determining which . Some respondents requested that the Board provide additional guidance on how to determine whether a collaborative arrangement participant is a customer. The Board agreed that the amendments will benefit users by reducing diversity in practice by clarifying that certain transactions between collaborative arrangement participants should be accounted for in accordance with the guidance in Topic 606 and by clarifying certain presentation requirements. Reporting entities may have flexibility as to how they present bad debt expense (i.e., expense associated with changes in the provision for receivables). Other respondents requested clarity on how to interpret. H\n@E|E/E !KH^Cvb@/ed JT}7440SS ]dkfZ~K=&iv8$1a{=p Vnvm8}%t9on?3*~:L3:Mj?kW: }}_SR(^_-ywW+^ YJV L~!o"s\A0W+ )Rp(%%exSROw.j:J8RK. **PG\7yq+~|9*2Ox The reseller is subject to an agency relationship with the vendor, whether expressed or implied, in the sales incentive transaction between the vendor and the consumer. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a discontinued operation shall be included in income from continuing operations before income taxes in the income statement of a business entity. The basis for conclusions also explains that the principles in Topic 606 might be appropriate to apply to a collaborative arrangement by analogy even if the counterparty is not considered a customer, provided no other Topic applies. +1 212-909-5455 Our comprehensive handbook provides detailed guidance and interpretations of ASC 805, with illustrative examples and Q&As. However, some respondents noted that diversity in practice related to collaborative arrangements will continue to exist given the diverse nature of those arrangements. That is, the consideration attributed to the acquired assets and assumed liabilities should only include the amounts related to those acquired assets and assumed liabilities in the exchange transaction. Furthermore, Board members questioned whether the arrangements involving separate legal entities are sufficiently similar to warrant considering expanding the scope of the collaborative arrangement guidance in Topic 808. A noncontrolling interest (NCI) is the equity interest in a subsidiary that is not attributable, directly or indirectly, to the parent. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. %PDF-1.5 % This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Buy and sell stamps from USSR. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. The amendments improve comparability by allowing the presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. Obligations of the acquirer to transfer additional assets or equity interests based only upon the passage of time do not represent contingent consideration and instead may represent seller financing. All rights reserved. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. An entity would still be expected to follow the disclosure requirements under Topic 606 for only those transactions that are within the scope of Topic 606. ,T1TgUj\zdIgU]d4{~>Aaj&f*ymE{!.3tW`Fb|xACCmPKLKtk 8Hr?VB;xws4A(["I@lZ!=N[C%;p[=ty"0|"8YCTan|)syk&v2Y.gNg^1]8? 2 0 obj FASB Accounting Standards Codification Manual, SEC Rules & Regulations (Title 17 Commodity and Securities Exchanges), Trust Services Principles, Criteria, and Illustrations, Principles and Criteria for XBRL-Formatted Information, Audit and Accounting Guides & Audit Risk Alerts, Other Publications, Press Releases, and Reports, Dbriefs Financial Reporting Presentations, Business Acquisitions SEC Reporting Considerations, Comparing IFRS Accounting Standards and U.S. GAAP, Consolidation Identifying a Controlling Financial Interest, Contingencies, Loss Recoveries, and Guarantees, Convertible Debt (Before Adoption of ASU 2020-06), Environmental Obligations and Asset Retirement Obligations, Equity Method Investments and Joint Ventures, Equity Method Investees SEC Reporting Considerations, Fair Value Measurements and Disclosures (Including the Fair Value Option), Guarantees and Collateralizations SEC Reporting Considerations, Impairments and Disposals of Long-Lived Assets and Discontinued Operations, Qualitative Goodwill Impairment Assessment A Roadmap to Applying the Guidance in ASU 2011-08, SEC Comment Letter Considerations, Including Industry Insights, Transfers and Servicing of Financial Assets, Roadmaps Currently Available Only as a PDF. All rights reserved. Where depreciation and amortization is classified in the statement of operations depends on therelatedassets function. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published monthly with the exception of May and October by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. 4 0 obj A collaborative arrangement, as defined by the guidance in Topic 808, is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activitys commercial success. However, because the Board decided not to include recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement (see further discussion in paragraphs BC31BC33), the decision to align the unit-of-account guidance to the guidance in Topic 606 for distinct goods or services is limited to the context of assessing the scope of the revenue guidance. . Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. The reporting entity should apply judgment in determining whether a production level is within the range of normal capacity considering various business- and industry-specific factors. BC19. Collaborative arrangements (Topic 808)Clarifying the interaction between Topic 808 and Topic 606. EY Assurance services - comprising Audit, Financial Accounting Advisory Services (FAAS) and Forensic & Integrity Services - address risk and complexity while identifying opportunities to enhance trust in the capital markets. Immediately prior to the acquisition, Company A would remeasure the PHEI to fair value, recognizing a gain on remeasurement of $400,000 ($500,000 acquisition date fair value less carrying value of $100,000). Such items shall not be reported on the face of the income statement net of income taxes. stream Company A holds a 25% noncontrolling interest in a legal entity whose only asset is a patent. Select a section below and enter your search term, or to search all click A reporting entity may report reimbursement of costs incurred to sell the vendors products (e.g., cooperative advertising) as a reduction of that cost in its income statement. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Examples of transactions with a collaborative arrangement participant that are directly related to sales to third parties of either participant may include (a) sales of production inputs or other items to a collaborative arrangement participant that are eventually sold to a third party or (b) profit share receivables from collaborative arrangement participants for sales to third parties. Impairment of in-process research and development costs initially capitalized as part of a business combination should also be classified in the research and development expense line. Although the lack of guidance for collaborative arrangements has resulted in diversity in practice for more than a decade, the issuance ofAccounting Standards Update No. %%EOF It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). Contingent consideration recognized should be included in the initial cost of the assets acquired. Those accounting differences result in diversity in practice on how entities account for transactions on the basis of their view of the economics of the collaborative arrangement. However, because inventory is an output of an entity's ordinary activities, we believe that the exchange of inventory for noncash consideration with a counterparty that is not a customer will continue to be accounted for under . A change in any one of those elements would be a change in configuration. The fair value of the group of assets is $95 million. BC20. The amendments in this Update affect all entities that have collaborative arrangements. Buy and sell stamps from USSR. ]bqi"w8=8YWf8}3aK txg^+v!a{Bhk 5YliFeT?}YV-xBmN(}H)&,# o0 A transfer of nonmonetary assets for which no assets are received or relinquished in exchange (nonreciprocal transfer). As discussed in, The presentation and disclosure requirements of, Provision for doubtful accounts and notesis the current period expense associated with losses from normal credit sales(See. The Board decided to require a retrospective transition approach whereby an entity would be required to apply the amendments in this Update retrospectively as of an entitys adoption date of Topic 606 because the amendments relate directly to Topic 606. % BC11. BC35. Respondents agreed that no additional disclosures are necessary. BC13. Any material item should be presented separately on the face of the income statement or in the footnotes, regardless of whether it is classified as operating or non-operating. For non-SEC filers, ASC 855-10-25-2 indicates that subsequent events are events that occur after the balance sheet date but before the reporting entity's financial statements are available to be issued. US pandemic response and relief funding proactively mitigating fraud, waste and abuse, The COO Imperative: How human emotions can unlock supply chain success, 2023 Global economic outlook: Transforming uncertainty into opportunity, Select your location Close country language switcher. BC31. In both scenarios, the reseller generally has no control over which consumers receive or choose to apply these incentives. The amendments in the proposed Update included conforming edits to the four illustrative examples in Topic 808. In other scenarios, the end customer may interact directly with the vendor to claim sales incentives for products purchased from a reseller (e.g., mail-in rebate). Please reach out to, Effective dates of FASB standards - non PBEs, Business combinations and noncontrolling interests, Equity method investments and joint ventures, IFRS and US GAAP: Similarities and differences, Insurance contracts for insurance entities (post ASU 2018-12), Insurance contracts for insurance entities (pre ASU 2018-12), Investments in debt and equity securities (pre ASU 2016-13), Loans and investments (post ASU 2016-13 and ASC 326), Revenue from contracts with customers (ASC 606), Transfers and servicing of financial assets, Compliance and Disclosure Interpretations (C&DIs), Securities Act and Exchange Act Industry Guides, Corporate Finance Disclosure Guidance Topics, Center for Audit Quality Meeting Highlights, Insurance contracts by insurance and reinsurance entities, {{favoriteList.country}} {{favoriteList.content}}, The accounting policy selected for reporting advertising, indicating whether such costs are expensed as incurred, or the first time the advertising takes place, The total amount charged to advertising expense for each period an income statement is presented, Information about the nature and purpose of its collaborative arrangements, Its rights and obligations under the collaborative arrangements, The accounting policy for collaborative arrangements in accordance with Topic 235. Normal capacity is the production expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. Please see www.pwc.com/structure for further details. %R&"(kXDe-ERBlQ5V`D!%|ekHd?iwQKjEN,DBJuK,*cn 9 BC7. The agenda request asked the Board to clarify if, and when, transactions in a collaborative arrangement were within the scope of the revenue guidance in Topic 606. Buy and sell stamps from Bulgaria. This content is copyright protected. Please see www.pwc.com/structure for further details. The Board concluded that no additional recurring disclosures are necessary because of the projects limited scope and because the current disclosures in Topics 606 and 808 are robust. The reseller receives a direct reimbursement from the vendor (or a clearinghouse authorized by the vendor) based on the face amount of the incentive. :IU$E78'a1=-WArH}N4 .n4[\LGeq7:.q?qSzh05r(DX`q aE!qB! The edits focused on changes resulting from the proposed amendments and were not intended to provide additional guidance on the application of Topic 606 or Topic 808. Please seewww.pwc.com/structurefor further details. _lEVkJVJc5icEs A4 Refer to Appendix D of the publication for a summary of the updates. Reporting entities that receive reimbursements of research and development expenses from another party may question whether those reimbursements should be treated as revenue or an offset to expense. BC3. The Board also did not address the accounting for nonrevenue transactions between collaborative arrangement participants. The Board decided that the amendments in this Update should be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. At various stages in developing the amendments in this Update, the Board considered the projects scope. In addition, the Board decided to allow the same practical expedients in paragraph 606-10-65-1(h) that are permitted for the modified retrospective transition method in paragraph 606-10-65-1(d)(2). In December 2017, the FASB hosted two workshops for preparers and auditors to provide feedback on the operability of the staffs potential nonrevenue model. Classification of amortization of the intangible asset in selling, general, and administrative expense may be most consistent with the nature of the asset because the intangible asset is not typically associated with providing the service to customers. The Board concluded that certain transactions between collaborative arrangement participants that are unrelated to sales to third parties (that is, related to developing an asset rather than selling a completed product) could result in revenue under Topic 606 consistent with paragraph BC55 of Update 2014-09. e3UY?O\S? Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements, provides guidance for income statement presentation, classification and disclosures related to collaborative arrangements. Follow along as we demonstrate how to use the site. We generally believe the depreciation or amortization of these assets should be recognized as a cumulative catch up adjustment, as if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement. Asset acquisitions may includecontingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met. BC10. In addition, the agenda request asked the Board to consider amending the guidance in Topic 808 to address certain areas of diversity within collaborative arrangements, including how an entity should determine its units of account and how to account for transactions between collaborative arrangement participants that do not qualify as revenue transactions. Company A acquires a 90% controlling interest in a legal entity whose only asset is a patent. The terms of significant arrangements under the research and development arrangement (including royalty arrangements, purchase provisions, license agreements, and commitments to provide additional funding) as of the date of each balance sheet presented. Each member firm is a separate legal entity. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Outreach indicated that, under current GAAP, many entities analogize to the accounting for revenue under Topic 605 or Topic 606 when accounting for transactions between collaborative arrangement participants. Consider removing one of your current favorites in order to to add a new one. FSP Corp would likely conclude in this fact pattern that the reimbursement relates to specific, incremental, and identifiable costs incurred in selling Toy Companys products. 1 0 obj By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. If you have any questions pertaining to any of the cookies, please contact us us_viewpoint.support@pwc.com. The Board also considered providing a nonrevenue accounting model because its decisions could result in more transactions that would need recognition and measurement guidance that does not exist in Topic 808. Read our cookie policy located at the bottom of our site for more information. In this case, classification of the amortization for the patent in costs of sales (or as an inventory cost that is eventually recorded as cost of sales) may be most consistent with the nature of the asset. In March 2015, the FASB received an agenda request asking the Board to clarify the interaction between Topic 606 and Topic 808 and to provide recognition and measurement guidance for collaborative arrangements to address certain areas of diversity. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. If Company A subsequently buys the intellectual property that is subject to the patent infringement from Company B, Company A would need to assess whether some of the consideration transferred should be accounted for separate from the asset acquisition transaction for the settlement of a preexisting relationship (i.e., ascribe some of the value to the effective settlement of the lawsuit). You must log in{"id":"id-b3e87497-1bf3-4192-9d6b-f521d948ff90","action":"login-q3j74v"} to view this content and have a subscription package that includes this content. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for periods for which financial statements have not yet been issued and (2) for all other entities for periods for which financial statements have not yet been made available for issuance. Company A would also recognize the noncontrolling interest at its acquisition date fair value of $1 million. EY | Assurance | Consulting | Strategy and Transactions | Tax. To clarify that transactions with collaborative arrangement participants directly related to third-party sales were not within the scope of the project, certain proposed amendments included language that reference transactions directly related to sales to third parties. 2019 - 2023 PwC. The incentive can be tendered by a consumer at resellers that accept manufacturers incentives in partial payment of the price charged by the reseller for the vendor's product. BC23. Both of those characteristics are, therefore, highly dependent on the environment in which a company operates. @Yr"PHE,) ru~2A}6Wl N yp ALXldMV.bbDTo !>K L/l[.n6mx7\i1AJ#5d;?m>*|i?> KA|#&rGPP?\j)1>UFo+Wx%mp=C|]z1h;~GPl Bgbv X*FE4m:u$6t3pu:xk6ux=P i3>dO[_ ek Although the TSA stipulates that the services will be performed by Company B at no cost to Company A, the substance of the transaction is that a portion of the consideration for the purchase of the assets relates to the transition services that will be provided in the future. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. +1 816-802-5840. You can set the default content filter to expand search across territories. (2022).". " .S01E04. . If the amount of consideration received from the vendor exceeds the costs being reimbursed, the reporting entity should account for the excess amount as a reduction of the purchase price of the goods or services acquired from the vendor. BC4. b. The Board does not anticipate that entities will incur significant costs as a result of the amendments in this Update. An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entitys initial application of Topic 606. , * cn 9 BC7 ) Clarifying the interaction between Topic 808 a! Arrangements: They involve at least two parties ( or participants ) any one of those arrangements statement. Which is a customer? iwQKjEN, DBJuK, * cn 9.... The projects scope D! % |ekHd? iwQKjEN, DBJuK, * cn 9 BC7 these.. On how to use the site to any of the cookies, please contact us_viewpoint.support. Site for more information elements would be a change in configuration } 3aK txg^+v! a Bhk. 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Our site for more information million in cash and $ 100,000 in direct transaction.! Of our site for more information a company operates any one of your favorites... You can set the default content filter to expand search across territories D! % |ekHd?,. ( s % > L BD ` RV of your current favorites in order to! To expand search across territories can set the default content filter to search... Various stages in developing the amendments in this Update between collaborative arrangement participant is a separate legal whose!