The FASB has released a proposed Accounting Standard Update (ASU) Collaborative Arrangement (Topic 808): Targeted Improvements.
The proposed update is being issued to clarify the interaction between Topic 808: Targeted Improvements and Topic 606: Revenue from Contracts with Customers. The proposed amendments would affect all entities that have collaborative arrangements. A collaborative arrangement, as defined in Topic 808 is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success.
The amendments in this proposed ASU would affect all entities that have collaborative arrangements. If adopted as proposed, this proposal would make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows:
Scope and Scope Exceptions (606-10-15)
- Amend the guidance to clarify that an entity’s collaborative partner is not prohibited from being a customer.
Scope and Scope Exceptions (808-10-15)
- Add unit-of-account in Topic 808 to align with the guidance in Topic 606 (i.e. a distinct good or service) limited to when an entity is assessing the scope of Topic 606.
- Amend the guidance to clarify that certain transactions between collaborative participants should be accounted for as revenue under Topic 606 when the collaborative participant is a customer in the context of the unit of account. In those situations, all of the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.
Other Presentation Matters (808-10-45)
- Amend the guidance to indicate that in a transaction that is not directly related to sales to third parties, presenting the transaction as revenue is precluded if the collaborative participant counterparty is not a customer.
Implementation Guidance and Illustrations (808-10-55)
- Includes consequential amendments from the changes above.
The effective date will be determined after the FASB considers feedback on the proposed amendments. Comments on this proposal are due by June 11, 2018.
Click here to read the full FASB proposal on Collaborative Arrangements (Topic 808).