EITF and Revenue Recognition

TheFASB Emerging Issues Task Force has issued Draft Abstracts Issues No. 08-1, "Revenue Arrangements with Multiple Deliverables," and No. 09-3, "Applicability of AICPA Statement of Position 97-2 to Certain Arrangements That Contain Software Elements." These draft abstracts address:

● How to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting,
● How the arrangement consideration should be allocated among the separate units of accounting, and
● Changes to the accounting for multiple element arrangements under AICPA Statement of Position 97-2, Software Revenue Recognition, that contain software-enabled products.

This is a reexposure of Issue 08-1. As a result of comments received and in connection with Issue 09-3 the Task Force made substantive changes to Issue 08-1. The Task Force reached a consensus-for-exposure on Issue 08-1 that:

● Eliminates the use of the residual method of allocation.
● Requires a vendor to allocate arrangement consideration at the inception of an arrangement to all deliverables in the arrangement using the relative-selling price method.
● Requires an entity to estimate the selling price for all deliverables within an arrangement if vendor specific objective evidence (VSOE) or third-party evidence (TPE) does not exist.

A vendor with a multiple-deliverable revenue arrangement is required to apply SOP 97-2 when the arrangement contains software that is "more than incidental" to a product.

Lest you think that this EITF consensus may not apply to any of your clients, Exhibit 08-1B contains examples of the application of the EITF consensus on Issue 08-1. The examples are designed to provide guidance with respect to determining whether a multiple-deliverable revenue arrangement contains more than one unit of accounting and, if so, how to measure and allocate the arrangement consideration to the separate units of accounting. Among the examples are a cellular phone contract, automobile sold with life time maintenance services, sale of home appliances with installation and maintenance services, and a painting contract.

You may download this draft abstract at www.fasb.org. The comment period for this abstract ends August 14, 2009.

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