Public Company Insight

	1st Quarter, 2010

Home | Archive | Subscribe | Contact Us

about the Author

Keith has over 28 years of professional experience providing audit and accounting services for both public and private companies. He specializes in Securities and Exchange Commission (SEC) reporting, mergers and acquisitions due diligence, and consulting on other complex accounting and reporting matters. Keith has assisted clients with a variety of significant transactions, including public and private common stock offerings, preferred stock, and private placements of debt and equity. More recently, he has led significant Sarbanes-Oxley Act (SOX 404) implementation projects, and acted as engagement partner and concurring partner for a number of publicly-traded companies.

Keith’s industry experience includes manufacturing and distribution, software development, telecommunications, energy, oil field services, and financial services. In addition to providing SEC expertise for public companies, Keith also serves a number of private equity firms.

Keith is currently a member of the Association for Corporate Growth (ACG), the Independent Petroleum Association of America (IPAA), the Society of Petroleum Engineers (SPE), and the Houston Producers Forum (HPF).

Keith serves as the Partner-in-Charge for the Houston office of HEIN & ASSOCIATES LLP and heads the SEC practice there. He is a frequent speaker for a number of industry organizations and regularly provides educational seminars on topics such as SOX 404, and other accounting or regulatory related topics. Prior to joining HEIN & ASSOCIATES LLP in 1991, Keith was a Senior Audit Manager for KPMG LLP in their Rochester, New York and Amarillo, Texas offices.

Keith can be reached at 713.850.9814 or ktunnell@heincpa.com.

Additional Newsletters

Energy Industry Insight

Manufacturing & Distribution Industry Insight

Real Estate, Construction, & Development Industry Insight

Tax Insight

HeinSight

www.heincpa .com

New Revenue Recognition Guidance

By Keith Tunnell, CPA, Partner-in-Charge, Houston Office

The new revenue recognition guidance (EITF 08-01) applies to all deliverables within contractually binding arrangements (whether written, oral, or implied, and hereinafter referred to as "arrangements") in all industries under which a vendor will perform multiple revenue-generating activities, except as follows:

A multiple-deliverable arrangement or a deliverable(s) in a multiple-deliverable arrangement within the scope of higher-level authoritative literature.

Arrangements that include vendor offers to a customer for either (1) free or discounted products or services that will be delivered (either by the vendor or by another unrelated entity) at a future date if the customer completes a specified cumulative level of revenue transactions with the vendor or remains a customer of the vendor for a specified time period or (2) a rebate or refund of a determinable cash amount if the customer completes a specified cumulative level of revenue transactions with the vendor or remains a customer of the vendor for a specified time period.

A vendor should evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. That evaluation must be performed at the inception of the arrangement and as each item in the arrangement is delivered.

In an arrangement with multiple deliverables, the delivered item(s) should be considered a separate unit of accounting if both of the following criteria are met:

The delivered item(s) has value to the customer on a standalone basis. That item(s) has value on a standalone basis if it is sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer’s ability to resell the delivered item(s), the Task Force observed that this criterion does not require the existence of an observable market for that deliverable(s).

If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor.

The criteria for dividing an arrangement into separate units of accounting should be applied consistently to arrangements with similar characteristics and in similar circumstances.

A delivered item(s) that does not qualify as a separate unit of accounting within the arrangement should be combined with the other undelivered item(s) within the arrangement. The allocation of arrangement consideration and the recognition of revenue should then be determined for those combined deliverables as a single unit of accounting.

Arrangement consideration should be allocated among the separate units of accounting based on their relative selling prices.

If there is vendor specific objective evidence (VSOE) or third-party evidence (TPE) of selling price for all units of accounting in an arrangement, the arrangement consideration should be allocated to the separate units of accounting based on their relative selling price (the relative selling price method). However, in the absence of VSOE or TPE of selling price for all units of accounting in the arrangement, the residual method should be used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered unit(s) of accounting equals the total arrangement consideration less the aggregate selling price of the undelivered unit(s) of accounting. When allocating the arrangement consideration using the vendor’s best estimate of selling price for the undelivered unit(s) of accounting, the amount allocated to the delivered unit(s) of accounting shall not exceed VSOE or TPE of the delivered unit(s) of accounting, if VSOE or TPE are known for the delivered unit(s) of accounting.

This Issue shall be effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after December 15, 2009. This Issue shall be applied on a prospective basis. Earlier application is permitted as of the beginning of a fiscal year.