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Financial Services

Results from April 18th Revenue Recognition TRG Meeting

Earlier this week, the Revenue Recognition Transition Resource Group (“TRG”) held a meeting to discuss the issues regarding the implementation of Topic 606, Revenue from Contracts with Customers, and International Financial Reporting Standards 15, Revenue from Contracts with Customers. Staff members and the TRG agreed on the following matters:

  • Memo No. 50, Scoping Considerations for Incentive-based Capital Allocations. Incentive-based capital allocations are within the scope of Topic 606.
  • Memo No. 51, Contract Asset Treatment in Contract Modifications. A contract asset is sustained in the new modified contract and recognized under the new modified contract similar to receivables, resulting in prospective accounting.
  • Memo No. 52, Scoping Considerations for Financial Institutions. Deposit fees fall under the scope of Topic 606; servicing arrangements within the scope of Topic 860, Transfers and Servicing, do not fall under the scope of Topic 606; and guarantees within the scope of Topic 460, Guarantees, or Topic 815, Derivatives and Hedging, do not fall under the scope of Topic 606.
  • Memo No. 53, Evaluating How Control Transfers Over Time. The criterion under paragraph 606-10-25-17 indicates that control does not transfer at separate points in time, and an applicable measure of progress should not lead to a material asset stemming from an entity’s performance being recognized.

Separately, staff members provided examples in Memo No. 54, Class of Customer, which illustrated their opinions regarding how the class of customer is considered when assessing whether a customer option brings about a material right. Analyses in the examples were based on the specific facts and circumstances of the examples. During its discussion, the TRG said that such facts and circumstances should be considered and judgment is to be applied when deciding whether a customer option to obtain additional goods or services leads to a material right.

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