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U.S. comment letter on performance obligations and licensing

Published on: Jun 30, 2015

Deloitte & Touche LLP comments on the FASB’s proposed Accounting Standards Update (ASU) Identifying Performance Obligations and Licensing issued by the FASB on May 12, 2015.

An excerpt from the comment letter is shown below:

We support the Board’s efforts to clarify and improve FASB Accounting Standards Codification Topic 606, Revenue From Contracts With Customers, to help reduce potential diversity in practice and the initial and ongoing costs of applying the new revenue standard. We believe that the proposal’s amendments are necessary to ensure that ASC 606 is understood by preparers and others and is practical to implement. We also encourage the FASB to continue its dialogue with the IASB as ASC 606 is amended in an effort to maintain convergence in the accounting for revenue recognition. Similarly, we encourage the IASB to pursue targeted amendments and clarifications to maintain a converged, stable, and operational standard.

We support the amendments to improve the guidance on identifying performance obligations. We believe that these amendments should permit the recognition of revenue from contracts with customers in a manner that more closely aligns with the economic substance of the arrangement. More specifically, we agree with the proposed practical expedients related to shipping and handling activities and to treating a series of distinct goods or services as a single performance obligation. We also support the Board’s proposed amendments specifying that an entity is not required to identify goods or services that are immaterial in the context of the contract and clarifying the guidance on sales and usage-based royalties.

In addition, we believe that the proposed amendments to clarify the nature of an entity’s promise in granting a license will help reduce inconsistent application of ASC 606 in these circumstances.

We view the proposed amendments as beneficial to the practical application of ASC 606 and helpful in clarifying the Board’s intent. However, as indicated in the appendix below, we have certain concerns and suggested improvements. We will continue to support the FASB’s efforts to develop further amendments, as necessary, to improve, clarify, or encourage practical application of the standard.

Transition resources such as the FASB-IASB joint revenue recognition transition resource group and the AICPA’s industry task forces have been an integral part of the implementation process and will remain so. We strongly support the FASB’s efforts to monitor entities’ implementation progress, publicly address implementation questions, assist entities and auditors during transition, and continue its dialogue with the IASB.

We will continue to work closely with our clients throughout their implementation process. However, a successful audit of the application of the new standard is directly linked to our clients’ readiness for adoption. Accordingly, we encourage the FASB to continue its outreach with financial statement preparers to understand their implementation status and progress toward successful transition.

Many of the proposed amendments consist of practical expedients to facilitate implementation of the standard’s requirements. They are similar to accounting conventions, except that they are explicitly included in a standard to reduce complexity in the standard’s application and are not considered deviations from the standard’s requirements. There has been a recent increase in demands on the FASB to create practical expedients related to numerous aspects of GAAP. Such demands have resulted in interesting questions about immaterial accounting errors arising from conventions that are not specifically included in the literature as a practical expedient. We encourage the FASB, SEC, PCAOB, and others in the profession to engage in and further the dialogue on these issues.

Full text of the comment letter is available below.



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