Back in April of 2010, the Financial Accounting Standards Board published new accounting guidance for calculating an often challenging method for recognizing payments on certain forms of revenue. Published as “ASU 2010-17: Revenue Recognition – Milestone Method (Topic 605)”, and discussed in draft abstract form in “EITF 08-9: Milestone Method of Revenue Recognition” on RevenueRecognition.com, the method allows vendors to recognize revenue at the time that a contractual obligation has been fulfilled, instead of applying revenues systematically throughout the term of the contract. However, because of the complexity of dealing with contractual incentives, such as bonuses, the milestone method outlines a few criteria that must be met.
One of the key points in this methodology is that a milestone must be an event for which there could be ‘substantive’ uncertainty for achieving this event at the time of contract signing. Although ‘substantive’ is a key word in this process, it still involves a matter of judgement considering either the vendor’s performance to achieve the milestone or the added value of the delivered item or service resulting from the achievement of the milestone. Most businesses may have some projects that may fit into this method of revenue recognition, and others that don’t. As such, an agile financial management solution that can manage variable revenue recognition models can help clarify and streamline these efforts. Contact BTerrell Group for more guidance with identifying and managing varying revenue recognition models. And, if you are concerned about the transition year difficulties imposed byASC 606 – Revenue from Contracts With Customers, we can help you get ahead of the game there, as well!