hb```[@(q$(^uJ=-m This was consistent with comments from respondents who stated that providing a year for implementation would provide entities that have extensive collaborative arrangements with adequate time to review their contracts. For more information about our organization, please visit ey.com. However, the Board decided that aligning those models would require a broader, longer term effort that would extend beyond the issues raised in the agenda request. The Board ultimately decided that the scope of the revenue guidance in Topic 606 should be aligned for units of account inside and outside collaborative arrangements; that is, the revenue guidance in Topic 606 should be applied if the collaborative arrangement participant is a customer in the context of a given unit of account. ASC 705 Cost of Sales and Services. 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. The acquirer and seller in an asset acquisition may have a preexisting relationship before negotiations for the exchange transaction begin that is effectively settled as a result of the asset acquisition. Download from EY Accounting Link # ASC 840 # leases # US GAAP Several respondents requested that the Board clarify the types of transactions directly related to sales to third parties. ASC 946-10 notes that the the Topic "only provides incremental industry-specific guidance for the entities that meet the assessment of investment company status" described in ASC 946-10-15-4 through 15-9. A qualitative assessment will, in some cases, be conclusive in determining that the estimated cash flows of the entity are expected to significantly change as a result of the exchange. In making this determination, we believe the acquirer in an asset acquisition should consider (1) the reasons for the transaction, (2) who initiated the transaction, and (3) the timing of the transaction, by analogy to the guidance for business combinations in. FSP Corp will contract directly with the advertising agencies and pay for the total cost of the campaign. BC6. Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. uGj|] h8 Eo9C6JJ>&4h\MV u: Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. BC35. In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services: Functional cookies to enhance your experience (e.g. Revenue from Contracts with Customers (Topic 606), Company name must be at least two characters long. A change in contingent consideration impacts the cost basis of acquired assets, which may also impact the income statement through subsequent accounting for the acquired asset. endstream endobj 1373 0 obj <>stream 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. Under that model, once a collaborative arrangement participant determined that an identified unit of account was outside the scope of Topic 606, it would recognize a transaction as either a reduction of cost or other income depending on whether the nature of the underlying transaction was related to a specific and identifiable cost incurred in accordance with the collaboration agreement (using concepts from Topic 606). BC14. FSP Corp has discretion over the use of the allowance, and it is not required to provide Toy Company with supporting documentation of how the allowance was utilized. Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For purposes of this guidance, the phrase vendor's sales incentive offered directly to consumers is limited to a vendor's incentive that meets all the following criteria: PwC. The following summarizes the Boards considerations in reaching the conclusions in this Update. Therefore, the reseller should recognize reimbursements for vendors sales incentives that meet the criteria in. EY updates FRD on income taxes EY has updated its Financial reporting developments (FRD) publication on income taxes. 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. BC20. Also, the consideration is not a reimbursement of specific, incremental, and identifiable costs incurred by FSP Corp to sell the vendors products. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. It lists three requirements for collaborative arrangements: They involve at least two parties (or participants). However, the consideration must be for reimbursement of specific, incremental, identifiable costs incurred by the reporting entity to sell the vendor's products. Ultimately, the Board decided not to propose a nonrevenue accounting model for collaborative arrangements for the reasons discussed below. The Board clarified that a contract that is not completed in the context of those expedients, as written in paragraph 808-10-65-2(e), refers to an arrangement for which all (or substantially all) of the revenue and expenses were recognized in accordance with guidance that was in effect before the date of initial application. 1434 0 obj <>stream (2022).". " .S01E04. . 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. Our FRD publication on business combinations has been updated to reflect the issuance of ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Foreign currency transaction gains/losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. The Board also considered whether to provide guidance for two additional areas that were raised in the agenda request: (a) unit of account and (b) recognition and measurement guidance for transactions not within the scope of the revenue guidance (that is, nonrevenue transactions). Therefore, the Board decided not to provide recognition and measurement guidance for nonrevenue transactions in a collaborative arrangement. EY FRD Lease accounting - ASC 840 alishan June 5, 2022 EY US GAAP Publications, US GAAP EY FRD publication on accounting for leases under ASC 840 has been updated to clarify and enhance our interpretive guidance. remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. Added unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) limited to when an entity is assessing the scope of Topic 606. This content is copyright protected. We bring together extraordinary people, like you, to build a better working world. The reseller receives a direct reimbursement from the vendor (or a clearinghouse authorized by the vendor) based on the face amount of the incentive. 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. The Board did not expand the scope to include the accounting for transactions with collaborative arrangement participants directly related to sales to third parties because feedback from entities and accounting firms indicated that the accounting for those transactions was not challenging and was relatively consistent among entities. /EdB+hh? <>/ExtGState<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange. Contingent consideration recognized should be included in the initial cost of the assets acquired. Therefore, the different alternatives the Board considered were taken from existing concepts in Topic 606, such as transfer of control and customer. The configuration (risk, timing, and amount) of the future cash flows of the asset(s) received differs significantly from the configuration of the future cash flows of the asset(s) transferred. These provisions are generally grouped within SG&A. FSP Corp should recognize the consideration received as a reduction of the purchase price of the water bottles because it has not provided a distinct good or service to Water Company in exchange for this fee. The Board chose not to expand the scope of the project to include arrangements structured within a legal entity (such as joint ventures). Example PPE 2-3 illustrates the allocation of consideration transferred on a relative fair value basis between an asset acquisition and a transition service arrangement entered into on the acquisition date. Are you still working? Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. If it is determined that the transaction has commercial substance, the exchange would be measured at fair value, rather than at the entity-specific value. hb```yl9B Disclosure shall be made in the financial statements of the total research and development costs charged to expense in each period for which an income statement is presented. The Board reached that conclusion because it would be confusing to users of financial statements if transactions in a collaborative arrangement were presented as revenue (see further discussion of presentation in paragraphs BC27BC30) but follow only certain aspects of Topic 606s requirements. Accordingly, if the consideration transferred is in the form of cash or other monetary assets, recognition and measurement of the acquired assets is based on the amount of cash or other monetary assets paid to the seller, in addition to direct transaction costs incurred. ]bqi"w8=8YWf8}3aK txg^+v!a{Bhk 5YliFeT?}YV-xBmN(}H)&,# o0 By continuing to browse this site, you consent to the use of cookies. FSP Corp enters into a supplier agreement with Toy Company to purchase toys to sell through its website. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. { Bhk 5YliFeT of our stakeholders should not be used as a substitute for consultation professional... ), Company name must be at least two characters long will contract directly with the advertising agencies and for. W8=8Ywf8 } 3aK txg^+v! a { Bhk 5YliFeT Toy Company to purchase toys to sell through its.... 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