ASU No.2010–17, Revenue Recognition–Milestone Method (Topic 605) Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force was issued April 2010.
The objective of this ASU is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.
Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. Authoritative guidance on the use of the milestone method did not previously exist. Therefore, constituents have raised questions on when and whether the use of this method is appropriate.
This ASU provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Vendors that provide research or development deliverables in an arrangement in which one or more payments are contingent upon achieving uncertain future events or circumstances are affected by this ASU.
It is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.
The objective of this ASU is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.
Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. Authoritative guidance on the use of the milestone method did not previously exist. Therefore, constituents have raised questions on when and whether the use of this method is appropriate.
This ASU provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Vendors that provide research or development deliverables in an arrangement in which one or more payments are contingent upon achieving uncertain future events or circumstances are affected by this ASU.
It is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.
ASUs are available on the FASB website, http://www.fasb.org/ under Standards.
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