In late December 2016, the Financial Accounting Standards Board released technical corrections to ASC Topic 606, Revenue from Contracts with Customers (Topic 606). The small scope updates in Accounting Standards Update (ASU) 2016-20 clarify elements of loan guarantee fees, impairment testing for contract costs and provisions for losses, among other areas identified by FASB stakeholders, the Transition Resource Group for Revenue Recognition and online feedback. Technical updates in ASU 2016-20 will be effective at the same time as the guidance in Topic 606.

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A publication of the Professional Standards Group
January 2017
Several Small Updates Made to the Revenue Recognition Standard
In late December 2016, the Financial Accounting
Standards Board released technical corrections
to ASC Topic 606, Revenue from Contracts with
Customers (Topic 606). The small scope updates in
Accounting Standards Update (ASU) 2016-20 clarify
elements of loan guarantee fees, impairment testing
for contract costs and provisions for losses, among
other areas identified by FASB stakeholders, the
Transition Resource Group for Revenue Recognition
and online feedback. Technical updates in ASU 2016-
20 will be effective at the same time as the guidance
in Topic 606.
Loan Guarantee Fees
Under the new revenue recognition standard, fees for
guarantees, other than product or service warranties,
are scoped out of Topic 606. How to account for
fees related to these guarantees was not clear. The
technical update clarifies that guarantee fees should
be accounted for in light of ASC Topic 460, Guarantees,
or ASC Topic 815, Derivatives and Hedging.
Contract Costs
Previous guidance includes information on impairment
testing for capitalized costs recognized under ASC
Subtopic 340, Other Assets and Deferred Costs.
Amendments establish a protocol for impairment
testing where entities consider expected contract
renewals and extensions and include both the amount
of consideration they have already received but not
recognized and the amount they expect to receive in
the future.
The guidance does not replace the guidance in ASC
Topic 340, nor does it supersede guidance in ASC
Topic 350, Intangibles—Goodwill and Other or ASC
Topic 360, Property, Plant, and Equipment. Entities
should apply the impairment testing guidance on
assets not subject to ASC 340, 350 or 360 and then
consider the assets that are in scope of ASC Topic
360 or ASC Topic 350.
Losses on Construction-Type and
Production-Type Contracts
The technical updates provide some relief for
companies with loss contracts. Topic 606 requires
contacts to be tested for loss at the performance
obligation level. ASU 2016-20 will allow entities to
elect to measure for loss at the contract level, though
measurement at the performance obligation level
is still permitted. This should minimize the risk that
entities are performing the loss assessment at a lower
level than in current practice.
Insurance Contracts and ASC Topic 606
To clear up the confusion surrounding the scope
exception for insurance contracts, the update removes
the word “insurance” from the guidance. Topic 606
will now read that all contracts within the scope of
ASC Topic 944, Financial Services—Insurance are
excluded from the new revenue recognition standard,
not just insurance contracts in scope of ASC
Topic 944.

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Copyright ©2017, Mayer Hoffman McCann P.C. All rights Reserved.
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please
contact your MHM auditor to further discuss the impact on your audit or audit report.
Disclosure of Remaining Performance
Obligations
Generally, entities must disclose information about
its unsatisfied performance obligations, including the
aggregate amount of the transaction price allocated
to the unsatisfied performance obligation. There
are some exemptions from the disclosure, such as
contracts that are less than a year in duration. The
update provides an optional exemption from the
requirement to disclose remaining performance
obligations for situations in which an entity is not
using variable consideration to recognize revenue.
The technical update in 2016-20 also requires entities
electing an exemption to provide additional information
in their disclosures.
Disclosure of Prior Period Performance
Obligations
Changes in the technical update clarify that the
requirement to disclose performance obligations
satisfied or partially satisfied in earlier periods applies
to all performance obligations, not just those in
corresponding contract balances.
Modifications to Examples
SmallupdatesweremadetotheContractModifications
Example 7 (contract modifications) and Example 38,
Case B (contract asset versus receivable) to better
align them with the Topic 606 guidance. Example
40 (refund liability) was updated to remove the term
“contract liability” from the journal entry.
Advertising Costs
Much of the guidance in ASC Subtopic 340-20 is
superseded when an entity adopts Topic 606. The
rule does not take into account certain liabilities that
were subject to ASC Subtopic 340-20, including
advertising costs. This guidance was reinstanted and
moved to ASC Topic 720, Other Expenses.
Fixed-Odds Wagering Contracts in the
Casino Industry
Industry-specific guidance on recognizing fixed-
odds wagering as gaming revenue was eliminated
with Topic 606. The technical update creates a new
Subtopic 924-815, Entertainment—Casinos that
includes a scope exception from the derivatives
guidance for fixed-odds wagering contracts issued by
casino entities.
Cost Capitalization for Advisors to Private
Funds and Public Funds
UpdatestoTopic606couldhaveproducedinconsistent
practice for accounting for offering costs for advisors
to public and private funds. The technical update in
2016-20 aligns the cost-capitalization guidance with
ASC Topic 946, Financial Services—Investment
Companies.
For More Information
For a more comprehensive examination of the
new revenue recognition standard, please see our
Revenue Recognition Resources page or contact
Brad Hale or Mark Winiarski of MHM’s Professional
Standards Group.