Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 72 IFRS U.S. GAAP substantially in the control of the vendor Unlike IFRS, ASC 605-25 includes specific guidance on allocating arrangement consideration to the elements in the arrangement. Note 1: In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements, which amends the guidance in ASC 605-25 as follows: • Modifies criteria used to separate elements in a multiple-element arrangement (eliminates the requirement of objective and reliable evidence of the fair value of the undelivered item(s)) • Introduces the concept of “best estimate of the selling price” for determining the selling price of a deliverable • Establishes a hierarchy of evidence for determining selling price of a deliverable • Requires the use of the relative selling price method and prohibits the use of the residual method to allocate arrangement consideration among units of accounting • Expands the disclosure requirements for all entities with multiple-element arrangements within the scope of ASC 605-25 The amended guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Note 2: In October 2009, the FASB issued ASU 2009-14, Certain Revenue Arrangements That Include Software Elements, which amends the scope of ASC 985-605 to exclude certain tangible products and related deliverables from the scope of that guidance. The excluded products and related deliverables must be evaluated for separation, measurement, and allocation under the guidance of ASC 605-25. The amended guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Note 3: In April 2010, the FASB issued ASU 2010-17, Milestone Method of Revenue Recognition: a consensus of the FASB Emerging Issues Task Force, to address accounting for arrangements in which a vendor satisfies its performance obligations over time, with all or a portion of the consideration contingent on future events, referred to as milestones (ASC 605-28). This guidance applies to R&D activities where an entity satisfies its performance obligations over a period of time and all or a portion of the © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 73 IFRS Where two or more transactions are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole, the recognition criteria shall be applied to all transactions together (IAS 18.13). In an agency relationship, the amounts collected on behalf of the principal are not revenue of the agent. Instead revenue is the amount of commission (IAS 18.8). The Appendix to IAS 18 states that an entity is acting as a principal if it has exposure to the significant risks and rewards associated with the sale of goods or services. It includes a list of features that indicate an entity is acting as a principal in a transaction. These features are similar to some of those included in ASC 605.45. U.S. GAAP consideration is contingent on achieving a milestone. The new guidance allows a vendor to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone in the period the milestone is achieved. Although the milestone method is not the only acceptable revenue attribution model for milestone consideration, other methods that result in the recognition of all of the milestone consideration in the period the milestone is achieved are precluded. The guidance on the milestone method is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. According to ASC 605-25-25-3, separate contracts entered into at or near the same time with the same entity or related parties are presumed to have been negotiated as a package and should be evaluated to determine if, in substance, they represent a single arrangement. The concept for recording revenues gross as a principal or net as an agent is similar to IFRS. Entities must consider the indicators of gross and net reporting in ASC 605-45 in determining whether to recognize revenue at the full amount billed to a customer or the net amount retained. Sale of goods Revenue from the sale of goods shall be recognised when all of the following conditions have been met (IAS 18.14): • The significant risks and rewards of ownership of the goods have been transferred to the buyer • The seller retains neither continuing managerial involvement to the degree normally associated with ownership nor effective control of the goods sold • The amount of revenue can be measured reliably • It is probable that economic benefits associated with the transaction will flow to the seller • The costs incurred or to be incurred can be measured reliably ASC 605-10-25-1 and SEC SAB Topic 13 outline the general principles of revenue recognition for the sale of goods and other items. Under ASC 605-10-25-1, revenue is recognized when it is earned and realized or realizable. According to SAB Topic 13, revenue generally is earned and realized or realizable when all of the following criteria are met: • Persuasive evidence of an arrangement exists • Collectibility is reasonably assured • Delivery has occurred or services have been rendered • The seller’s price to the buyer is fixed or determinable Services Revenue from services is recognised by reference to the U.S. GAAP does not specifically address accounting for © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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