FASB clarifies collaborative arrangement accounting rules

By Ken Tysiac

FASB issued a new standard Monday that provides guidance on how to assess whether certain transactions between participants in collaborative arrangements should be accounted for within the board’s revenue recognition standard.

The guidance is provided in Accounting Standards Update No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.

In a collaborative arrangement, two or more parties actively participate under contract in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The standard issued Monday clarifies the interaction between the guidance for certain collaborative arrangements and the revenue recognition standard.

The new standard also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. This is accomplished because the standard allows organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard.

According to the rules issued Monday, the parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue recognition standard.

The amendments in the new standard take effect for public companies for fiscal years beginning after Dec. 15, 2019, and interim periods within those fiscal years. For all other organizations, the amendments take effect for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021. Early adoption is permitted.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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