Modifications to accounting for multiple-element revenue arrangements

It's no secret that revenue recognition for multiple-element arrangements can be extraordinarily complicated for technology companies. In an attempt to address some of the challenges surrounding separating elements, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force, and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force. In order to clarify what this updated revenue recognition guidance means for your company, we at Grant Thornton are pleased to share our latest New Developments Summary, Modifications to accounting for multiple-element revenue arrangements.

Modifications to accounting for multiple-element revenue arrangements summarizes the key changes codified through the new ASUs and provides real-life examples to help you understand how to apply the new guidelines. For instance, ASU 2009-13 amends FASB Accounting Standards CodificationTM (ASC) 605, Revenue Recognition, 25, "Multiple-Element Arrangements" (formerly EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables"), as follows:

• Modifies criteria used to separate elements
• Introduces the concept of "best estimate of selling price" for determining selling price of a deliverable
• Establishes a hierarchy of evidence for determining the selling price of a deliverable
• Requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting
• Expands the disclosure requirements for multiple-element arrangements

ASU 2009-14 amends the scope of ASC 985, Software, 605, "Revenue Recognition" (formerly AICPA Statement of Position 97-2, Software Revenue Recognition) as follows:

• Excludes certain tangible products that contain software components and nonsoftware components functioning together to deliver the product's essential functionality
• Excluded products and related deliverables must be evaluated for separation, measurement, and allocation under the guidance of ASC 605-25, as amended by ASU 2009-13.

Download the paper.