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Revenue Recognition: New Answers to "How Much?" and "When?"

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Even though the FASB continues to work with the International Accounting Standards Board (IASB) to overhaul and converge the revenue provisions of US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS), entities that prepare financial statements in accordance with US GAAP have no choice but to "play by the rules" in the short term. Last month, the FASB changed the rules. Specifically, it issued two Accounting Standards Updates (ASU) relating to certain aspects of revenue accounting and reporting under US GAAP. US GAAP contains many rules designed to address complexities present in the kinds of revenue arrangements that are common today. The amended guidance arising from ASU Nos. 2009-13 and 2009-14 shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.

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									                                                                                       FINANCIAL REPORTING
                                                                                                Bruce Pounder, CMA, CFM, Editor

     Revenue Recognition: New
     Answers to “How Much?”
              and “When?”
     The FASB recently made two
     significant changes to its revenue
     standards. For many entities, the
     changes will alter the amount                        of revenue accounting and report-        Element Arrangements.
     and timing of reported revenue                       ing under U.S. GAAP. In this                Vendors often enter into rev-
     as well as impose additional                         month’s column, I’ll provide a           enue arrangements that involve
     disclosure requirements.                             high-level explanation of why the        multiple deliverables. Under a
                                                          answers to “How much?” and               multiple-deliverable arrangement,
                                                          “When?” are likely to change for         a vendor may make multiple

     F    rom a financial-statement
          preparer’s perspective, “How
     much?” and “When?” are the cen-
                                                          many reporting entities and give
                                                          other implications of the FASB’s
                                                                                                   deliveries of the same product
                                                                                                   over time, may deliver different
                                                                                                   products at different times, or may
     tral questions of revenue recogni-                                                            perform the same or different ser-
     tion. Unfortunately, clear answers                   Multiple Elements vs.                    vices over different time frames,
     to those questions are often elu-                    Multiple Deliverables                    possibly in conjunction with the
     sive because of the complexities of                  U.S. GAAP contains many rules            delivery of products under the
     modern commerce. Over time,                          designed to address complexities         same arrangement.
     the U.S. Financial Accounting                        present in the kinds of revenue             The key thing to understand is
     Standards Board (FASB) has                           arrangements that are common             that just because an arrangement
     responded by promulgating a                          today. One example of such rules         involves multiple deliverables, it
     plethora of highly prescriptive                      is that every revenue arrangement        doesn’t necessarily involve multi-
     rules on revenue recognition.                        must be analyzed by the vendor           ple elements (i.e., units of ac-
     Even though the FASB continues                       (or service provider) to determine       counting) for purposes of revenue
     to work with the International                     
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