Determining transaction price is more difficult than it may first appear. Transaction price is the basis for measuring revenue. It is the amount of consideration the entity expects to be entitled to in exchange for transferring promised goods or services. Determining transaction price requires election of policies and significant use of judgment.
Completing this step for fixed price contracts can be straightforward. However, the path becomes convoluted for variable priced contracts. The new revenue recognition standard identifies three areas that affect the estimate of transaction price, which we will review:
• Nature of consideration
• Timing of consideration
• Amount of consideration
In addition, there are many variables that must be considered and evaluated when determining transaction price. This segment will review these variables with applied examples.
Within this segment we will detail out considerations that must be taken into account to determine the transactions price. This includes understanding the concept of constraints, variability in transaction price, rights of return, dealing with significant financing components, understanding consideration payable to the customer and evaluating sales based or usage based royalties. To illustrate the concepts we will use multiple scenario analysis. In addition, we will discuss the impact of COVID-19 on concepts imbedded in determining the transaction price.
Publication Date: November 2021
Designed For
Accountants and Finance professionals, Internal auditors/Professionals considering the role of internal audit, and Legal and Compliance professionals.
Topics Covered
- Determine The Transaction Price
- Consideration in Determining TP
- Constrained Example
- Implied Variability
- Implied Example
- Example VC Constrained
- Rights of Return
- Significant Financing Component
- Consideration Payable to the Customer
- Sales Based or Usage Based Royalties
- COVID Implications on Transaction Price
Learning Objectives
- Recognize and apply concepts and considerations that contribute to the transaction price
- Recognize and apply the concept and methods to determine of variable consideration
- Recognize and apply the concept of variability constraints
- Identify what constitutes implied variability
- Recognize how rights of return impact transaction price
- Recognize how provisions that include a significant financing component impact transaction price
- Recognize examples of significant financing components
- Recognize how sales based or usage royalties impact transaction price
- Recognize examples related to the various components of transaction price
- Identify the first step in the revenue recognition model
- Describe how transaction price applies
- Identify a fee charged by retailers to providers to have product placed on their shelves
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.