1. The Amended RR ED – Part 7 Ashwinpaul (Tony) C. Sondhi President A. C. Sondhi & Associates, LLC www.acsondhi.com July 17, 2012

2. 12/31/2013Copyright 2012 A. C. Sondhi & Associates, LLC2 The Amended RR ED: Part 7 My objective in this webcast series is to discuss specific financial reporting risks to clarify industry specific issues relevant to financial statement preparers, auditors, and investors as the FASB and the IASB work to complete. The Comment period for the Amended RR ED ended March 13, 2012. I strongly encourage everyone to review the comment letters the Boards have received to date. See www.FASB.org and www.IASB.org for more information on and staff summaries of comment letters.www.FASB.org www.IASB.org

3. 12/31/2013Copyright 2012 A. C. Sondhi & Associates, LLC3 The Amended RR ED: Part 7 Revenue Recognition Meetings: The FASB and the IASB hosted public roundtables in May 2012 on the amended revenue recognition proposals. Open to those who have submitted a comment letter, or intend to submit a comment letter. The roundtables were held in London (UK), Norwalk(US), and Tokyo (Japan) as well as an additional roundtable for US private companies in May 2012. The IASB hosted outreach meetings in March in Sao Paulo (Brazil) and Kuala Lumpur (Malaysia). See www.fasb.org and www.ifrs.org for details.www.fasb.orgwww.ifrs.org

4. 12/31/2013Copyright 2012 A. C. Sondhi & Associates, LLC4 Proposed Revenue ASU The Revenue Recognition Roadmap Principles: Step 1: Identify the contract(s) with the customer. Step 2: Identify the separate performance obligations in the contract. Step 3: Determine the Transaction Price. Step 4: Allocate the Transaction Price. Step 5: Recognize revenue when a performance obligation is satisfied.

5. 512/31/20135 Contract Costs: Proposed Revenue ASU Revised November, 2011 Basic Principle – Paragraph 91: Where available, use existing guidance for costs incurred in fulfilling contracts. See for example, Topic 330 – Inventory, Topic 360 - PP&E, Topic 350-40 – Internal-use Software, and Topic 985 - Capitalized software. Copyright 2012 A. C. Sondhi & Associates, LLC

6. 612/31/20136 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 91: An asset from the costs to fulfill a contract should be recognized only for costs that: a) Relate directly to a contract (or to a specific anticipated contract); b) Generate or enhance resources of the entity that will be use din satisfying performance obligations in the future; c) Are expected to be recovered. Copyright 2012 A. C. Sondhi & Associates, LLC

7. 712/31/20137 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 92 - Examples of Eligible Direct Costs: Direct labor (e.g., salaries of employees providing services directly to customers), Direct materials (e.g., supplies used to provide services to customers), Copyright 2012 A. C. Sondhi & Associates, LLC

8. 812/31/20138 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 92 - Examples of Eligible Direct Costs (Continued): Allocated overhead costs directly related to the contract or contract activities (e.g., costs of contract management and supervision, insurance, and depreciation of tools and equipment used in fulfilling the contract), Costs explicitly chargeable to the customer in accordance with contractual terms, and Other costs incurred explicitly for the contract (for example, subcontractor costs). Copyright 2012 A. C. Sondhi & Associates, LLC

9. 912/31/20139 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 93 - Examples of Costs that must be expensed as incurred: Costs of delivered goods and services (related to past performance, that is, fully or partially satisfied obligations), Abnormal (not reflected in the contract) fulfillment costs and waste, Copyright 2012 A. C. Sondhi & Associates, LLC

10. 1012/31/201310 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraph 93 - Examples of Costs that must be expensed as incurred (Continued): General and administrative costs (unless those costs are explicitly chargeable to the customer under the contract – apply paragraph 91), and Costs related to remaining performance obligations that the entity cannot distinguish from costs that relate to satisfied performance obligations. Copyright 2012 A. C. Sondhi & Associates, LLC

11. 1112/31/201311 Contract Costs: Proposed Revenue ASU Revised November, 2011 Incremental Costs of Obtaining a Contract (ICOC): Paragraph 94: ICOC must be capitalized costs if the entity expects to recover those costs, subject to a practical expedient in paragraph 97; Paragraph 97 (Practical Expedient): ICOC may be expensed if the amortization period for the asset would be one year or less. Copyright 2012 A. C. Sondhi & Associates, LLC

12. 1212/31/201312 Contract Costs: Proposed Revenue ASU Revised November, 2011 Incremental Costs of Obtaining a Contract (ICOC): Paragraph 95: ICOC costs include those that an entity would not have incurred if the contract had not been obtained (e.g., sales commissions). Paragraph 96: Costs that would have been incurred regardless of whether the contract was obtained must be expensed as incurred, unless they are explicitly chargeable to the customer regardless of whether the contract is obtained. Copyright 2012 A. C. Sondhi & Associates, LLC

13. 1312/31/201313 Contract Costs: Proposed Revenue ASU Revised November, 2011 Amortization (Paragraphs 98 and 99): Capitalized costs (Paragraphs 91 or 94) must be amortized as related goods and services are delivered. The capitalized costs may include costs related to goods or services to be transferred under a specifically identifiable anticipated contract (for example, services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved). The amortization should be updated to reflect significant changes in the expected pattern of transfer of goods or services and the changes should be accounted as a change in accounting estimate (Subtopic 250-10). Copyright 2012 A. C. Sondhi & Associates, LLC

14. 1412/31/201314 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraphs 100-103 - Impairment: Paragraph 100 - Impairment losses must be recognized to the extent that the carrying amount of the deferred cost asset (paragraphs 91 and 94) exceeds: The remaining amount of the consideration to which an entity expects to be entitled in exchange for goods or services to which the asset relates, less The paragraph 92 costs that relate directly to providing those goods or services. Copyright 2012 A. C. Sondhi & Associates, LLC

15. 1512/31/201315 Contract Costs: Proposed Revenue ASU Revised November, 2011 Paragraphs 100-103 - Impairment: The amount the entity expects to be entitled is based on the principles for determining the transaction price. Paragraph 102 – Before recognizing impairments on paragraph 91 or 94 cost assets, an entity must recognize impairment losses based on other applicable guidance, for example, Topic 330 – Inventory except for impairment losses of asset groups under Topic 360 – PP&E, and Topic 350 – Goodwill and Other Intangibles. Paragraph 103 – Previously recognized impairment losses may not be reversed. Copyright 2012 A. C. Sondhi & Associates, LLC

16. 12/31/2013Copyright 2012 A. C. Sondhi & Associates, LLC16 Tony Sondhis Winter - Summer 2012 Seminar Schedule TopicDatesLocation Advanced Topics in Revenue Recognition July 26 & 27San Jose, CA Advanced Topics in Software Revenue Recognition August 20 & 21Boston, MA ContractsAugustRaleigh, NC Please visit www.acsondhi.com or call 727-797-1515 for agenda and registration information.www.acsondhi.com

17. 12/31/2013Copyright 2012 A. C. Sondhi & Associates, LLC17 Tony Sondhis Winter – Summer 2012 Seminar Schedule TopicDatesLocation Revenue RecognitionAugustBoston, MA Software Revenue RecognitionAugustSan Jose, CA RR in Health Care and Bio-Tech Industries AugustSan Francisco, CA Please visit www.acsondhi.com or call 727-797-1515 for agenda and registration information.www.acsondhi.com