Proformative presents EITF 08-1 and 09-3, Reporting Implications and Revenue Recognition Roadmap. Special thanks Joe Talley, Partner, Deloitte. To download full presentation, visit http://bit.ly/cibS97

1. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Revenue Recognition
Update

2. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
EITF 08-1 and 09-3: Reporting
Implications and Revenue
Recognition Roadmap
Joe Talley, Partner
Deloitte

3. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Issue 08-1(ASU 2009-13),
Revenue arrangements with
multiple deliverables
© Deloitte 2010

4. Issue 08-1:
Amendments to Issue 00-21 (ASC 605-25)
Issue 00-21 Issue 08-1
Criteria for Separation Criteria for Separation
Delivered element(s) have standalone Delivered element(s) have standalone
value value
Undelivered element(s) have objective
and reliable evidence of fair value
If a general right of return exists for If a general right of return exists for
delivered element, performance of the delivered element, performance of the
undelivered element is probable and in undelivered element is probable and in
vendor’s control vendor’s control
Allocation Methods Allocation Method
Relative fair value Relative selling price
Residual
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5. How is the Selling Price Determined
under Issue 08-1?
- Must establish the selling price at inception of an arrangement for
ALL deliverables whether delivered or undelivered
Selling Price Hierarchy
Must use if it exists and
if
obtainable without VSOE Vendor-Specific
Objective Evidence
undue cost and effort
If VSOE does not exist,
use TPE if it exists and if
obtainable without TPE Third-Party
Evidence
undue cost and effort.
Can use only if VSOE
and TPE do not exist –
new concept under 08-1
ESP Estimated Selling
Price
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© Deloitte 2010

6. Implementation Issues:
Elimination of Residual Method
Facts
• Total consideration $1,000
• Two deliverables
‒ Delivered product (Est. of selling price $800, No VSOE or TPE)
‒ Undelivered services (VSOE is $400)
ASC 605-25 [Issue 00-21] Issue 08-1
Residual Method: Relative Selling Price Method:
$1,000 (total consideration) $800 (delivered product selling
- price)
$400 (undelivered services selling ÷
price) $1,200 (aggregate selling price)
= x
$600 Allocated to delivered product $1,000 (total consideration)
=
$667 Allocated to delivered product
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© Deloitte 2010

7. Qualitative Factors for ESP
Entity Specific Factors Market Specific Factors
 Customer Demand
 Existence and Effect of
 Pricing Practices customers
 Discounts
E  Technological
advancements
 Cost and Margin S  Technological
 Required Rates of obsolescence
Return P  Economic conditions
Fluctuation in Customers
internal costs
ANALYSIS & DOCUMENTATION
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© Deloitte 2010

8. Issue 08-1: Transition
• New or materially modified arrangements in fiscal years beginning
on or after June 15, 2010
• Prospective application: Significantly expands current disclosure
requirements
• Description of change in allocation method
Transition • Description of change in pattern of revenue recognition
• Determine whether adoption will materially affect future periods
• Current year revenue that would have been recognized under
Issue 00-21 or prior year revenue that would have been
recognized under Issue 08-1
• Optional retrospective application
• If adopted in an interim period, retrospectively adjust to beginning
of fiscal year
Early
Adoption • Disclose effect on revenue, income before taxes, net income,
earnings per share, effect of the change for appropriate captions
presented, etc.
© Deloitte 2010 8

9. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Issue 09-3 (ASU 2009-14) ,
certain revenue arrangements
that include software elements
© Deloitte 2010

10. Issue 09-3: Scope
Arrangements excluded from the scope of software guidance:
“Software components of tangible products that are sold,
licensed, or leased with tangible products when the
software components and non-software components of the
tangible product function together to deliver the tangible
product’s essential functionality”
Software and non-software deliver
essential functionality?
• Use factors and professional judgment
Yes No
Apply Issue 08-1 Apply Software Guidance
• Non-software • Software
• Software • Undelivered elements
• Undelivered elements
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© Deloitte 2010

11. Issue 09-3: Separation and Allocation
Some arrangements may include non-software components
and software components
• Separate non-software components from software components
using guidance in Issue 08-1
– Non-software components include software and software-related
elements scoped out of ASC 985-605 [SOP 97-2] by Issue 09-3
• Further separate multiple-elements within non-software component
using Issue 08-1
• Further separate multiple-elements within software component using
SOP 97-2
• Bifurcate undelivered items related to both software and non-
software components
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12. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Bridging the gap
between U.S.
GAAP and IFRS
© Deloitte 2010

13. SEC Statement on Convergence and
Global Standards
February 24, 2010 - SEC issued statement expressing continued support for
development of single set of globally accepted accounting standards and
recognized IFRS as being best positioned to serve that role.
Summary SEC Statement on Convergence and Global Standards
• Summarizes some of the public feedback on the IFRS roadmap
• Directs the staff to carry out a “Work Plan” that sets forth specific areas and factors
for consideration before potentially transitioning to IFRS
• Withdraws the proposal on early use
− Does not rule out an ability to early adopt in the future (presumably once a
decision is made next year)
• Execution of the Work Plan, combined with the completion of the convergence
efforts would position the Commission to make an informed decision on a mandate
next year
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© Deloitte 2010

14. Next steps and expectations
Work Plan + Convergence = SEC decision in 2011
Final rulemaking necessary in order to implement any mandate
• Will be exposed for public comment
• Adequate time will be allowed for adoption
‒ Any mandate would not be effective until approximately 2015 or 2016
• Early adoption may be allowed once a mandate is decided
Future role of the FASB to be determined
• Liaison between IASB and U.S. constituents?
• Provide technical advice to SEC on endorsement of IFRSs?
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15. Possible Timeline for Adoption
The SEC anticipates providing four to five years for IFRS adoption
2011 2012 2013 2014 2015 2016
Potential IFRS Early Adoption
U.S. GAAP Reporting
First IFRS Financial Statements
1/1/2013 Transition Date 12/31/2015 Reporting Date
Opening statement of 3 years of financial
financial position statements
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© Deloitte 2010

16. What are companies currently doing
to plan for IFRS?
• Analyze impacts of IFRS on financials, systems, processes and
IFRS organization broadly
Assessment • Support dialog within (and outside) the organization
• Assess impacts of converged standards
Convergence • Potentially comment on exposure drafts
• Prepare for adoption of US GAAP changes
• Understand statutory reporting landscape
Statutory • Plan for countries converging or converting in near term
Reporting • Begin to centrally manage global reporting requirements
• Identify key impacts of IFRS on systems projects
System • Inform design decisions
considerations • Determine whether or not to build in IFRS elements
…and monitoring SEC progress on the workplan.
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17. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
This presentation contains general information only and should not be
relied upon for accounting, business, financial, investment, legal, tax, or
other professional advice or services. This presentation is not a substitute
for such professional advice or services, nor should it be used as a basis
for any decision or action that may affect you or your business. Before
making any decision or taking any action that may affect you or your
business, you should consult a qualified professional advisor. The
information contained in this presentation likely will change in material
respects; we are under no obligation to update such information.
Neither Deloitte & Touche, LLP, Deloitte Touche Tohmatsu nor any of their
affiliates or related entities shall have any liability to any person or entity
who relies on this presentation.
© Deloitte 2010

18. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Thank You