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FASB Issues Highly Anticipated New Revenue Recognition Rules

After much deliberation FASB issued new guidance for revenue recognition on two highly controversial issues: Is there an alternative to VSOE and do software components of tangible products trigger software revenue recognition rules? FASB’s new Accounting Standards Update, ASU 2009-13 and ASU 2009-14 (formerly know as EITF 08-1 and EITF 09-3), take those issues head on.

Accounting Standards Update ASU 2009-13 (formerly known as EITF 08-1) introduces a “selling price” hierarchy for multiple-deliverable arrangements and for the first time allows for management selling price estimates in case where no VSOE (Vendor Specific Objective Evidence) or third-party evidence can be determined. This also results in the elimination of the residual method, since now price estimates for all elements of an arrangement are possible. ASU 2009-13 will be effective for fiscal years beginning June 15th 2010 and early adoption is possible.

ASU 2009-14 (EITF 09-3) tackles another hotly debated item: Should the existence of a software component in a tangible product trigger the application of software revenue recognition accounting rules. Manufactures of cell phones, computer hardware, medical devices, even cars have had to determine if included software was merely incidental or really essential to the whole product. Now ASU 2009-14 specifically excludes such types of products from the use of software revenue recognition rules. This removes the VSOE requirement and allows vendors to use the estimated selling price and multiple-deliverable arrangements guidance for revenue recognition. ASU 2009-14 will also be effective for fiscal years beginning June 15th 2010 and early adoption is possible.

Read more about the new rules in these RevenueRecognition.com articles:

Seismic Shift in SOP 97-2 - New ASU 2009-14 (EITF 09-3)

EITF 00-21 Replaced - New ASU 2009-13 (EITF 08-1) Allows for Estimated Selling Price