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Departure from new Revenue Recognition requirements

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#1
Wiles  
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What options are available if a company wishes to depart from the new Revenue Recognition requirements?

The AICPA is of the opinion that an "except for" opinion is not appropriate.

Does that mean the only solution is to issue an Adverse Conclusion report?
 

#2
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Is there a deferral available for one more year (if your client is a fiscal)?

Not aware of any departures - if you’re preparing statements and it’s not an area you’re overly familiar with, find a CPA firm to partner with and get you and the client through the process. Doesn’t always result in a change to the pattern of revenue recognized...not sure how far down the path you’ve gotten.
 

#3
jon  
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Preparation of financials are for income tax purposes!!!!!!!!!
 

#4
Wiles  
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HenryDavid, Yes. My client gets to wait one more year due to Covid.

My client manufactures large equipment. All production takes less than one year and they have always recognized revenue at delivery. Based on my understanding, they would need to review each of their contracts and make a determination if they should recognize revenue earlier, during production. This is something they are not interested in adopting. It's just a matter of timing and would only serve to accelerate income.

The bank is fine with allowing them to not accelerate income, but the bank still wants a GAAP report and not a tax basis report.
 

#5
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Look at the contract and determine what are the performance obligations, determine the transaction price, allocate that price, then recognize revenue when those performance obligations are met.

My guess is the customer taking possession is the performance obligation and you won't need to change anything. If this a review or audit, you will need to address this in your workpapers as well as the financial statement notes.

This has gotten a lot of folks spooked, but it reads to me like big GAAP problems where contracts are complex, have multiple performance obligations, etc. I can see this applying to contractors, but they are already doing this with % complete contracts.
 

#6
Wiles  
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Thank you, Bushmaster. That’s good insight. However, I believe this client’s business is one of the exceptions. But, it could also be that I don’t have a full grasp of what is a “performance obligation” for this business.

More than 50% of their business is custom build equipment and some will include install at their customers location. They will always invoice at delivery even if install is pending.

They will collect a deposit and may issue progress invoices. Both are posted to liabilities as customer deposits. The contract allows them to retain these deposits if the customer cancels, which rarely happens.
 

#7
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I see.

This may be a good chance to have input into the contracting piece and spell it out clearly. From your post, it appears income will accelerate in year but will most likely smooth out in subsequent years.

The performance obligation is basically your client does something which triggers earnings based on the contract. Sounds like your client could be a % complete builder.
 

#8
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Is this even a valid tax method? Any idea what they’re doing there? That could be the impetus to get them to adopt...
 


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