Emerging Issues Committee
Decision Summary
December 21, 2009

Abstract Approved

Multiple Deliverable Revenue Arrangements

Draft Abstract D80, “Multiple Deliverable Revenue Arrangements,” was issued for public comment by December 19, 2009.  The Draft Abstract is consistent with the amendments to FASB Accounting Standards Codification Sub-topic 605-25 (formerly EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables“).  These amendments require a vendor to allocate arrangement consideration at the inception of an arrangement to all deliverables using the relative selling price method.  It also changes the level of evidence of the standalone selling price required to separate deliverables when more objective evidence of the selling price is not available.  Given the requirement to use the relative selling price method of allocating arrangement consideration, it prohibits the use of the residual method.

The Committee modified the Abstract to clarify that it does not apply to certain multiple deliverable software arrangements and agreed to issue a final Abstract.  Entities will be permitted to continue to use the guidance in existing EIC-142 until adoption of IFRSs or accounting standards for private enterprises.

The  Basis of Application reads as follows:

“The provisions in this Abstract may be applied prospectively and should be applied to revenue arrangements with multiple deliverables entered into or materially modified in the first annual fiscal period beginning on or after January 1, 2011.  Early adoption is permitted.

If an entity decides to early adopt this Abstract and the period of adoption is not the first reporting period in the entity’s fiscal year, the provisions in this Abstract should be applied retroactively from the beginning of the entity’s fiscal period.

The entity should disclose at a minimum, for all previously reported interim periods in the year of adoption, revenue, income before income taxes, net income, earnings per share and the effect of the change for each of those items.

In the year of adoption an entity should disclose information that enables users of the financial statements to understand the effect of a change in accounting policy if the provisions in this Abstract are adopted on a prospective basis.  To satisfy this objective, an entity should disclose at a minimum and by similar types of arrangements: a description of any change in the units of accounting; a description of the change in how a vendor allocates the arrangement consideration to various units of accounting; a description of the changes in the pattern and timing of revenue recognition; and whether the adoption of the provisions of this Abstract is expected to have a material effect on financial statements in periods after the initial adoption.

If the effect of adopting the provisions of this Abstract is material, the qualitative information in the preceding paragraph should be supplemented with quantitative information in the period of adoption to satisfy the objective of enabling users to understand the effect of the change in accounting policy.  Depending on an entity’s facts and circumstances, examples of methods (but not the only potential methods) that may individually or in combination provide quantitative information that satisfies that objective are ones such as: the amount of revenue that would have been recognized in the year of adoption if the related arrangements entered into or materially modified after the effective date were subject to the measurement requirements of EIC-142, “Revenue Arrangements with Multiple Deliverables”; the amount of revenue that would have been recognized in the year before the year of adoption if the arrangements accounted for in EIC-142 were subject to the measurement requirements of this Abstract; for arrangements that precede the adoption of the provisions of this Abstract, the amount of revenue recognized in the reporting period and the amount of the deferred revenue as of the end of the period from applying the guidance in EIC-142; and for arrangements that were entered into or materially modified after the effective date of this Abstract, the amount of revenue recognized in the reporting period and the amount of deferred revenue as of the end of the period from applying the provisions of this Abstract. If an entity decides to apply the provisions of this Abstract retroactively, prior period financial statements should be restated in accordance with ACCOUNTING CHANGES, Section 1506. In addition to the disclosures required by Section 1506, in periods subsequent to transition, the entity should disclose the amount of revenue (if material) recognized in those periods that was originally included in prior periods.”

EIC-175 was posted on the AcSB website on December 24, 2009.

Abstracts Amended

Consequential Amendments

The Committee discussed and approved amendments to the following Abstracts as a consequence of the release of Section 1582, Business Combinations.

• EIC-10, “Reverse Takeover Accounting”
• EIC-12, “Capitalization of Interest Costs on Investments in Potential Takeover Targets”
• EIC-14, “Adjustments to the Purchase Equation Subsequent to the Acquisition Date”
• EIC-42, “Costs Incurred on Business Combinations”
• EIC-55, “Identifiable Assets Acquired in a Business Combination”
• EIC-73, “Buy-Out Transactions”
• EIC-89, “Exchanges of Ownership Interests Between Enterprises Under Common Control – Wholly and Partially-Owned Subsidiaries”
• EIC-92, “Arm’s Length Buy-Out of a Business Followed by an Amalgamation”
• EIC-94, “Accounting for Corporate Transaction Costs”
• EIC-114, “Liability Recognition for Costs Incurred on Purchase Business Combinations”
• EIC-119, “The Date of Acquisition in a Business Combination”
• EIC-124, “Definition of a Business”
• EIC-125, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Business Combination”
• EIC-127, “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Business Combination”
• EIC-137, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination”
• EIC-138, “Internalization of the Management Function in Royalty and Income Trusts”
• EIC-140, “Accounting For Operating Leases Acquired in Either an Asset Acquisition or a Business Combination”
• EIC-145, “Basis of Accounting for Assets Acquired Upon the Formation of an Income Trust”
• EIC-151, “Exchangeable Securities Issued by Subsidiaries of Income Trusts”
• EIC-154, “Accounting for Pre-Existing Relationships Between the Parties of a Business Combination”