Post Thu Sep 06, 2012 8:44 pm

Revenue Recognition under ASPE

A reader sent me a tweet asking to clarify Revenue Recognition criteria under ASPE. I will do a full post/write up on it one day in the future but for now since it's specific I'll answer here. Specifically the difference between .05, .06 and .07

This is covered under section 3400.

.04 states that recognition requires that performance be complete. Performance is described in .05 and .06

.05 Covers only the performance which deals with the SALE OF GOODS
- Significant risks and rewards have of ownership have transferred from seller to buyer.
- Measurement can be established (reasonable)

.06 Covers only the performance which deals with the SALE OF SERVICES and LONG-TERM CONTRACTS
- Performance shall be determined via percentage of completion method OR completed contract method
- Measurement can be established (reasonable)

.07 applies to both .05 and .06 as evidence that performance is achieved
(a) evidence of an arrangement (more criteria in .08)
(b) delivery occurred / services rendered (more criteria in .09)
(c) price is fixed/determinable. (more criteria in .10)

So when analyzing an issue, you might consider the following things:

- We need to determine whether we can recognize revenue and how much/what method
- You need determine if performance is satisfied and collection is reasonably assured
- For sale of goods you begin with .05 which flows into .07 if you need to show specific evidence that performance is achieved
- For sale of services/long-term contracts you begin with .06 which flows into .07 if you need to show specific evidence that performance is achieved
- Depending on the situation, you may have to go into .08-.10 as evidence for .07

My last attempt to make this easier to follow:

.05 (Big Picture) -> .07 (More detail) -> .08-.10 (Even more detail)
.06 (Big Picture) -> .07 (More detail) -> .08-.10 (Even more detail)
Then conclude

Obviously each case may be different and you'll have to look at different aspects of these but hopefully this clarifies your understand of how this section works.