Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

The New World of Revenue

Recognition: Industry Impacts

and Transition Options

• Discover why a “rules-based” version of the “principles-

based” standard will be applied in practice

• Understand how the new standard could impact specific

industries

• Identify how the external market may view certain

adoption strategies for the new revenue recognition

standard

After attending this event you will be able to:

Learning Objectives

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Welcome to Proformative

Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

The New World of Revenue

Recognition: Industry Impacts and

Transition OptionsJeff Tchir, CPA, Director of Revenue Accounting,

Silver Spring Networks

• We will apply a “rules-based” version of the “principles-based” standard in practice

• The new standard has some particular impacts on certain industries

– Enterprise Software

– Networking and Telecommunications

– Cloud-based Services

– Semiconductors

– Construction

• Your adoption strategy is primarily not an accounting decision

• There are a variety of sources available to stay informed

What You Will Hear From Me Today

Rules vs. Principles

12 Number of years since the FASB discussed a potential major project on revenue recognition

700 Total pages of Topic 606 document as published by the FASB (including conforming amendments, background information, and basis for conclusions)

5 Steps that make up the core principle (that revenue should depict the transfer of promised goods or services)

125 Paragraphs of the actual guidance (not counting examples)

91 Paragraphs of Implementation Guidance

63 Number of illustrative examples

19 Members of the Transition Resource Group

16 Current count of AICPA Task Forces

Statistics

We will get a “rules-based” version of the new standard

1. The definitions are distinctions without a difference

– Principle – “an adopted rule or method for application in action”

– Rule – “a principle or regulation governing conduct, action,

procedure, arrangement, etc.”

2. The market is litigious

– Shareholder lawsuits launched immediately after restatements

– Rules lend themselves to automated procedures and

compliance

– Easier to audit a rule vs. judgment

Principle = Rule = Principle ?!

Principles and Rules – Two Problems

Steps to Achieve the Core Principle

• Identify the Contract(s)Step 1

• Identify the Performance ObligationsStep 2

• Determine the Transaction PriceStep 3

• Allocate the Transaction PriceStep 4• Recognize Revenue upon Satisfaction of

the ObligationStep 5

Industry Impacts

• Separation of performance obligations– No VSOE required

– Inclusion of future deliverables (specified upgrades)

• Time value of money– Maintenance and support contracts greater than one

year

• Time-based licenses– Based on customer’s ability to benefit

– Right to Access vs. Right to Use

• Post-contract Customer Support– Potential for each aspect of PCS to be accounted for

as a separate performance obligation (e.g. updates vs. telephone support)

Enterprise Software

Thank you for your interest in this presentation.

View the on-demand webinar or download the full

presentation at:

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The New World of Revenue Recognition:

Industry Impacts and Transition Options