Disclosure Reminders for Revenue from Contracts with Customers (ASU 2014-09)
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), provides a principles-based framework for recognizing revenue and superseded virtually all revenue guidance for exchange transactions.
The overall principle is that an organization recognizes revenue from contracts with customers when it transfers goods or services to the customer at the amount the organization expects to be entitled to receive for the exchange from the customer. FASB ASC 606 introduced a five-step approach to apply when recognizing revenue, and it significantly expanded the required disclosures. One important consideration is that FASB ASC 606 doesn’t apply to contributions. Those transactions continue to follow the guidance in FASB ASC 958-605.
FASB ASC 606 significantly increased both quantitative and qualitative information required to be disclosed. The objective of these disclosures is to provide financial statement users with information to understand the nature, amount, timing, and uncertainty of revenues and related cash flows. Each organization should determine the amount of disclosure needed to meet this objective.
Separate disclosure under FASB ASC Topic 606 isn’t required if the organization already discloses the information based on other GAAP. In addition, nonprofit organizations may elect not to make certain disclosures. Following is a refresher on the requirements.
The following should be disclosed as of each date for which a statement of financial position is presented and for each period for which a statement of activities is presented:
- Revenue recognized from customer contracts, either on the face of the financial statements or in notes to the financial statements, separately from amounts not associated with customer contracts (FASB ASC 606-10-50-4).
- Impairment (credit) losses recognized for both customer receivables and contract assets, either on the face of the financial statements or in notes to the financial statements (FASB ASC 606-10-50-4).
- Revenue disaggregated based on how control of goods and services transfer to customers, over time or at a point in time (FASB ASC 606-10-50-7).
- Disaggregated revenue by categories that reflect how economic factors (i.e., type of contract, type of customer, geographical location of customers) affect the nature, amount, timing, and uncertainty of revenue and cash flows (FASB ASC 606-10-50-7, FASB ASC 606-10-55-89 through 55-91). Most nonprofit organizations can elect not to make this disclosure but must then disclose this information qualitatively (FASB ASC 606-10-50-7).
- Beginning and ending balances of receivables from customer contracts, contract assets, and contract liabilities (FASB ASC 606-10-50-11).
- Information about contract performance obligations, including the nature of promised goods and services, when performance obligations are generally satisfied, significant payment terms (payment due dates, any variable consideration, any significant financing component), any related obligations for returns or refunds, and any warranty obligations (FASB ASC 606-10-50-12 and -12A).
- Significant judgments and changes in significant judgments affecting amounts and timing of revenue recognized, including those used to determine both the timing of satisfying performance obligations, and the transaction price and amounts allocated to performance obligations (FASB ASC 606-10-50-17).
- Transition disclosures which vary based on whether the organization used the full retrospective or modified retrospective approach (FASB ASC 606-10-65-1).
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