FASB recently issued a proposal that would make targeted changes to its standard for collaborative arrangements.
The proposed Accounting Standards Update (ASU) also would clarify the interaction between the collaborative arrangements standard and the board's new standard on revenue recognition.
Under FASB ASC Topic 808, Collaborative Arrangements, a collaborative arrangement consists of two or more parties that are contracted to actively participate in a joint operating activity. The parties are exposed to significant risks and rewards associated with that activity.
Because Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, diversity in practice has resulted, according to FASB. More questions arose after the issuance of ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), the new revenue recognition standard. Stakeholders said it was unclear whether Topic 606 could be applied to certain transactions in collaborative arrangements.
If the new proposal is approved, it would:
- Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606, limited to when an entity is assessing the scope of Topic 606.
- 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 these situations, all the guidance in Topic 606 would be applied, including recognition, measurement, presentation, and disclosure requirements.
- Clarify that in a transaction that is not directly related to sales to third parties, presenting the transaction as revenue would be precluded if the collaborative participant counterparty is not a customer.
Comments on the proposal were due June 11.