FASB Distinguishes Revenue and Collaborative Arrangements Standards
In its efforts to clarify when collaborative arrangements between companies generate revenue instead of payments between partners, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2018-18— Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.
Per the narrow update, when a collaborative participant acts as a customer, the contract should be accounted for under Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers. The accounting must include the recognition, measurement, presentation, and disclosure provisions. ASU No. 2018-18 also allows companies to disclose units of account in collaborative arrangements within the revenue recognition standard’s scope jointly with revenue accounted for under the same standard. The FASB noted that parts of the collaborative arrangement outside of the scope of ASC 606 must be disclosed separately.
Public companies must apply ASU No. 2018-18 to fiscal years, including interim periods during those years, starting after December 15, 2019. All other companies must apply the guidance to fiscal years starting after December 15, 2020, and to interim periods starting after December 15, 2021. Early adoption will be allowed.