Updates and Changes due to COVID
Topic 606 (ASC 606) revenue recognition standard, outlines five steps for proper compliance. There are many considerations that should be considered within each step based on your process and industry. In addition, the recent impact of the Coronavirus has also impacted how companies may evaluate revenue recognition. In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and the International Accounting Standards Board (IASB) issued International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers. Subsequent to the issuance of ASU No. 2014-09, FASB issued the following amendments to provide additional clarification:
• ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date
• ASU No. 2016-08, Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting Revenue Gross Versus Net)
• ASU No. 2016-10, Revenue from Contracts with Customers) – Identifying Performance Obligations and Licensing
• ASU No. 2016-12, Revenue from Contracts with Customers– Narrow-Scope Improvements and Practical Expedients
The standard affects all entities—public, private, and not-for-profit—that have contracts with customers, except for certain items, which include leases accounted for under FASB ASC 840, Leases; insurance contracts accounted for under FASB ASC 944, Financial Services—Insurance; most financial instruments, and guarantees (other than product or service warranties). In addition, the new standard requires significantly more disclosure than previous generally accepted accounting principles (GAAP).
The potential accounting impacts from the coronavirus have been extensive and from a financial reporting perspective, broad-ranging, affecting among others, a company’s going concern considerations, asset impairment considerations and financial statement disclosures. Yet another critical accounting area that could be affected by COVID-19 is revenue recognition, including revenue recognition internal control processes.
The revenue recognition guidance in ASC Topic 606 provides principles that permit entities to make the judgments necessary to recognize revenue in a manner that reflects the true economics of a transaction stemming from a contract with a customer. Three concepts embedded in the principles that are particularly relevant in the current economic situation are:
• Assessing the ability to collect the consideration promised in a contract
• The requirement for entities to not recognize revenue in excess of what is probable to be reversed in future (a concept otherwise known as the constraint on variable consideration), and
• The accurate measurement of revenue that is recognized over time.
With these in mind, we will identify the revenue recognition areas that could be most susceptible to impact or change, due to the pandemic, as well as evaluate the potential repercussions from these COVID-19 effects.
Publication Date: December 2020
Designed For
Accountants and Finance professionals, Auditors, Executive management/ Board members and Audit Committee members, and Legal and Compliance professionals.
Topics Covered
- Overview COVID”19 Impact
- Five Step Model
- Step One: Identify the Contract, COVID-19 Challenges, and Considerations
- Step Two: Performance Obligations and COVID-19 Implications
- Step Three: Transaction Price and COVID-19 Implications
- Step Four: Allocate and COVID-19 Implications
- Step Five: Recognize Revenue
- Disclosures
Learning Objectives
- Describe the current economic environment and the impact of COVID-19 on the revenue recognition standard
- Recognize and apply the new revenue recognition core principles and the five-step revenue model
- Describe Step One: Identify the Contract and evaluate the impact of COVID-19
- Describe Step Two: Determine Performance Obligations and evaluate the impact of COVID-19
- Describe Step Three: Determine the Transaction Price and evaluate the impact of COVID-19 on step three
- Describe Step Four: Allocate Transaction Price to Performance Obligations and evaluate the impact of COVID-19 on step four
- Recognize and examine some scenario situations related to COVID-19
Level
Basic
Instructional Method
Self-Study
NASBA Field of Study
Accounting (2 hours)
Program Prerequisites
None
Advance Preparation
None
Instructor
Lynn Fountain
Lynn Fountain has over 38 years of experience spanning public accounting, corporate accounting and consulting. 20 years of her experience has been working in the areas of internal and external auditing and risk management. She is a subject matter expert in multiple fields including internal audit, ethics, fraud evaluations, Sarbanes-Oxley, enterprise risk management, governance, financial management and compliance. Lynn has held two Chief Audit Executive (CAE) positions for international companies. In one of her roles as CAE, she assisted in the investigation of a multi-million-dollar fraud scheme perpetrated by a vendor that spanned 7 years and implicated 20 employees. The fraud was formally investigation by the FBI and resulted in 5 indictments estimating a $13M fraud loss.
Ms. Fountain is currently engaged in her own consulting and training practice. She is a highly sought-after trainer and international speaker. In addition, Ms. Fountain has assisted numerous companies with enterprise risk management frameworks, internal audit processes and financial accounting. She also serves as a discussion leader for the AICPA for numerous classes finance, accounting and risk management topics.
Ms. Fountain is the author of three separate technical books. Her first book released in 2015 by the Institute of Internal Auditors Foundation is entitled “Raise the Red Flag – The Internal Auditors Guide to Fraud Evaluations”. Her second book “Leading the Internal Audit Function” was released in October 2015 by Taylor & Francis Publications. This book serves as the initial launch for a series of leading practice internal audit and information technology publications. Her third book “Ethics and the Internal Auditor’s Dilemma” was released in December 2016.
Ms. Fountain obtained her BSBA from Pittsburg State University and her MBA from Washburn University in Kansas. She has her CPA, CGMA, CRMA credentials.