In practice: adding the Revenue Recognition ASU to the taxonomy

In practice: adding the Revenue Recognition ASU to the taxonomy
April 10, 2015

Special thanks to Anna Kwok, Senior Director of Professional Services at Workiva, for her help in preparing material on this topic. Anna is a member of the XBRL Taxonomy Advisory Group at the Financial Accounting Standards Board (FASB).

In our last blog, we looked at the general process for updating the US GAAP Taxonomy for new Accounting Standard Updates (ASUs). This is done annually by the XBRL team at the Financial Accounting Standards Board (FASB).

The complexity of the process may surprise you. Take a look at the four step process explained in depth in a previous blog, here.

Let’s take the new accounting codification update on revenue recognition as an example and walk through what the process looks like for developing the taxonomy.

Example: Revenue Recognition

Modeling Decision Process
We will use the Topic 606, Revenue from Contracts with Customers (May 2014) to illustrate the modeling decision process. Specifically, Topic 606 included codification on the disaggregation of revenue from contracts with customers, and a new category based on the timing of revenue recognition.

The disclosure requirements include:

606-10-55-89 Paragraph 606-10-50-5 requires an entity to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

606-10-55-91 Examples of categories that might be appropriate include, but are not limited to, all of the following:

  1. Type of good or service (ie: major product lines)
  2. Geographical region (ie: country or region)
  3. Market or type of customer (ie: government and nongovernment customers)
  4. Type of contract (ie: fixed-price and time-and-materials contracts)
  5. Contract duration (ie: short-term and long-term contracts)
  6. Timing of transfer of goods or services (ie: revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time)
  7. Sales channels (ie: goods sold directly to consumers and goods sold through intermediaries)

A filer may disclose revenue by segments, and within each segment the amounts by geography, product line, and timing of recognition. The team has modeled an example and provides illustrations. The next two tables show this modeling, with the usual Implementation Guide notations for line items, axes and members:

In addition, they also highlight the pros and cons of the modeling approach presented, present specific questions to users, and ask stakeholders for any other use cases they should consider. In this example, the new disclosure requirement to break down revenues from customers with contracts compared to revenues not from contracts are modeled as line item concepts, while the disaggregation by timing is modeled as an axis. The team pointed out an implication of this approach in its memo, posted a related question, and shared the feedback received in a summary online. Here is a portion of the summary:

Modeling Implication: “Revenue from Contracts with Customers” and “Revenue Not from Contracts with Customers” will be in an alternative calculation relationship to roll up to the total revenue element (“Revenues”). The concepts will be defined based on the scope of the ASU. Thus “Revenue from Contracts with Customers” will need to be defined to make it clear that it is the amount of revenue from contracts with customers within the scope of Accounting Standards Update 2014-XX Revenue Recognition (Topic 606) Revenue from Contracts with Customers. As a result, certain sources of revenue such as insurance premiums will be considered as “Revenue Not from Contracts with Customers” because it is not within the scope of the ASU.

Questions: Are there other ways to make the intended purpose clear for elements “Revenue from Contracts with Customers” and “Revenue Not from Contracts with Customers” besides the definitions?

Feedback: Disaggregation of revenue – One [TAG] member suggested considering using line items for timing of transfer of goods and services (at a point of time or over time). Besides definitions, one member suggested making the standard labels of “revenue from contracts with customers” and “revenue not from contracts with customers” explicit to indicate they are defined based on the scope of ASU. FASB staff will take the input into consideration.

With an ASU effective date for annual reporting periods beginning after December 15, 2016, this change will not be added to the US GAAP taxonomy until the 2016 release.

Now that you’ve seen the decision process, what insights do you have to share? Your input into this process is valuable—make your voice heard. You can view the ASU proposed taxonomy changes currently available for comment here, and provide your insights to the team.

Susan Yount

About the author

Susan Yount is the Director of Reporting Practices for Workiva. Previously, she served as the Associate Chief Accountant in the Office of Interactive Data at the SEC.