This course provides an overview of critical challenges companies encounter under ASC 606, emphasizing several key areas that can be particularly challenging for effective revenue recognition. This includes identifying valid contracts, determining performance obligations, assessing variable consideration, and distinguishing between recognizing revenue over time versus at a point in time. The course also covers principal versus agent considerations, accounting for contract modifications, licensing arrangements, and disclosure requirements.

Chapter 1 – Identifying the Contract with the Customer

This chapter focuses on the critical first step of identifying a contract with the customer under ASC 606. For a contract to qualify for revenue recognition, it must meet certain criteria. That is, both parties must agree, there should be clear rights and payment terms that can be enforced, and it must be likely that the seller will collect the expected payment. However, this process can be tricky, especially with situations involving multiple contracts with the same customer, contract modifications, unique payment terms, or contract cancellations.

Chapter 2 – Determining Performance Obligations

This chapter addresses the important step of identifying distinct performance obligations within contracts under ASC 606. It emphasizes the significance of determining whether goods or services are separately identifiable and addresses the challenges that arise from bundled offerings, where multiple products or services are provided together, as well as the complexities introduced by customization requirements, changes in customer requirements, and long-term contracts.

Chapter 3 – Variable Consideration and Significant Financing Components

This chapter explores how to manage variable payments in contracts, such as discounts, rebates, and bonuses, and why accurately estimating these amounts is essential for proper revenue recognition. It also covers ASC 606 guidelines for limiting estimates in cases where payment amounts are uncertain. The chapter also addresses the impact of financing components, explaining how the timing of payments can influence the contract’s overall value and highlighting considerations for industries with long-term projects or delayed payment schedules.

Chapter 4 – Recognizing Revenue Over Time vs. Point in Time

This chapter addresses the determination that management must make at the inception of a contract regarding the timing of control transfer for goods or services to a customer. Understanding whether control transfers over time or at a specific point is essential, as it directly influences the timing of revenue recognition and the overall accounting treatment of the contract.

Chapter 5 – Principal vs. Agent Considerations

This chapter provides an overview of principal versus agent considerations within the context of the revenue recognition guidance. This includes a discussion of the factors that should be considered to determine whether an entity is acting as a principal or an agent (or both) within an arrangement. This chapter includes several examples to illustrate the guidance as well as best practices entities can implement to ensure their principal vs. agent evaluations are appropriate.

Chapter 6 – Accounting for Contract Modifications

This chapter explores the concept of contract modifications and their impact on revenue recognition under ASC 606. A contract modification occurs when the terms of an existing agreement are changed, affecting the scope, price, or both. It’s important for entities to determine whether these modifications should be treated as a continuation of the existing contract or as a new, separate agreement.

Chapter 7 – Licensing Arrangements and Intellectual Property

This chapter focuses on the accounting for licenses, with an emphasis on how to recognize revenue from agreements that grant customers rights to use or access intellectual property. ASC 606 requires a detailed assessment of whether the license is distinct, and whether the IP is functional or symbolic. Distinct licenses typically involve functional IP, with revenue recognized at the point the customer gains control, while licenses that provide access to evolving IP require revenue recognition over time. This framework helps ensure accurate and consistent revenue recognition across different types of license arrangements.

Chapter 8 – Financial Statement Disclosures

This chapter focuses on financial statement disclosure requirements with respect to revenue recognition. Under ASC 606, companies are required to disclose detailed information about their revenue recognition policies, including the nature of the contracts, the timing of revenue recognition, and the methods used to allocate revenue. These disclosures help users of financial statements assess the quality, sustainability, and risks associated with a company’s revenue, ensuring consistency and comparability across entities.