New FASB Guidance Clarifies Some Transactions in Collaborative Arrangements Can Count as Revenue

Chris Gaetano
Published Date:
Nov 6, 2018

The Financial Accounting Standards Board (FASB) released new guidance saying that transactions in collaborative arrangements count as revenue, and therefore are under the purview of current revenue recognition standards, provided the the participant is a customer in the context of a unit of account.

A collaborative arrangement 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 ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard.

In such situations, all guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

A collaborative arrangement is at least partially within the scope of Topic 606 if a unit of account, identified as a promised good or service (or bundle of goods or services) that is distinct within the collaborative arrangement. If a collaborative arrangement is wholly or partially outside the scope of other topics, including Topic 606, the unit of account, recognition, and measurement for the unit or units of account shall be based on an analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. 

A transaction with a collaborative arrangement participant that is not directly related to sales to third parties cannot be presented together with revenue recognized under Topic 606, provided the collaborative arrangement participant is not a customer. 

The FASB, in its basis for conclusions, said that the board initially did not provide specific recognition and measurement guidance for collaborative arrangements  because "the difficulty in developing a single accounting model that could be applied to a wide range of different collaborative arrangements." However, the issuance of the new revenue recognition standard "heightened the need for clarity on whether the guidance in [the new standards] applies to collaborative arrangements." 

For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.

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