Revenue Recognition - Top Challenges in Applying ASC 606

Author: Kelen Camehl

This course provides an overview of critical challenges companies encounter under ASC 606, emphasizing several key areas that can be particularly challenging for effective revenue recognition. This includes identifying valid contracts, determining performance obligations, assessing variable consideration, and distinguishing between recognizing revenue over time versus at a point in time. The course also covers principal versus agent considerations, accounting for contract modifications, licensing arrangements, and disclosure requirements.

Publication Date: March 2025

Topics Covered

• Identifying the Contract with the Customer
• Determining Performance Obligations
• Variable Consideration and Significant Financing Components
• Recognizing Revenue Over Tim vs. Point in Time
• Principle vs. Agent Considerations
• Accounting for Contract Modifications
• Licensing Arrangements and Intellectual Property
• Financial Statement Disclosures

Learning Objectives

• Identify the criteria for contract validity under ASC 606
• Recognize complexities in multiple contracts with the same customer
• Determine the effects of contract modifications on revenue recognition
• Explain how to differentiate between contract cancellations and terminations
• Identify distinct performance obligations within contracts under ASC 606
• Recognize the criteria for determining if goods or services are separately identifiable
• Explain how to differentiate between bundled offerings and individual performance obligations
• Determine the impact of customization on performance obligations in contracts
• Recognize the impact of changes in customer requirements on performance obligations
• Identify different types of variable payments in contracts, including discounts, rebates, and bonuses
• Recognize the importance of accurate estimation of variable payments for revenue recognition
• Determine appropriate methods for estimating uncertain payment amounts
• Explain how to distinguish between contracts with and without significant financing components
• Recognize factors that impact the time value of money in long-term payment contracts
• Identify factors that influence the determination of control transfer in a contract
• Recognize implications of transferring control over time versus at a specific point in time
• Explain how to distinguish between obligations that satisfy control transfer over time vs. at a point in time
• Determine the significance of contract terms in assessing when control transfers to a customer
• Identify key factors that determine whether an entity acts as a principal or an agent
• Recognize the impact of principal vs. agent classifications on revenue recognition
• Determine steps for accurately assessing principal and agent roles in revenue transactions
• Recognize best practices for conducting principal vs. agent evaluations
• Identify when a contract modification is treated as a new contract or continuation of an existing one
• Recognize when additional goods or services in a modification are distinct
• Determine if the price adjustment reflects the standalone selling prices of the new goods or services
• Explain how to differentiate between contract modifications as separate contracts or part of the existing agreement
• Select the appropriate revenue recognition method for a contract modification
• Identify criteria for determining whether a license is distinct under ASC 606
• Explain how to distinguish between licenses that grant a right to use IP and those that grant a right to access IP
• Recognize the differences between functional and symbolic intellectual property IP
• Determine when revenue should be recognized for licenses involving functional IP
• Select the appropriate revenue recognition method for licenses that provide access to evolving IP
• Identify key financial statement disclosure requirements under ASC 606 for revenue recognition
• Recognize required disclosures about contract nature and revenue policies
• Identify the timing of revenue recognition disclosures based on ASC 606 guidelines

Level
Overview

Instructional Method
Self-Study

NASBA Field of Study
Accounting (8 hours)

Program Prerequisites
None

Advance Preparation
None