1. Revenue Recognition Milestone Method ASC 605-28 Highlights

2. Overview This subtopic specifies accounting for research and development deliverables or units of accounting that include milestones that are accounted for under the milestone method of revenue recognition.

3. Scope Applies to all entities Applies to transactions including R&D deliverables or units of accounting – under which a vendor satisfies performance obligations over a period of time and – when a portion or all of the consideration is contingent upon uncertain future events, – except when the guidance in this subtopic conflicts with guidance elsewhere in Topic 605.

4. The guidance in this subtopic is not the only acceptable revenue attribution model for R&D deliverables consideration or unit of accounting consideration contingent upon achieving a milestone. A vendor shall apply policies for recognizing deliverable consideration consistently to similar deliverables or units of accounting. This subtopic does not address whether an arrangement comprises one or more deliverables or whether multiple deliverables meet the separation requirements (605-25).

5. Milestone defined An event having all of the following characteristics: – There is substantive uncertainty at the date of the arrangement that the event will be achieved. – The event can be achieved, based in whole or in part, on either The vendor’s performance or A specific outcome resulting from the vendor’s performance. – If achieved, the event would result in additional payments being due to the vendor.

6. Recognition Guidance in this subtopic shall be met in order for a vendor to recognize consideration for a deliverable or a unit of accounting – that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. Even if the criteria in this subtopic are met, a vendor may elect to apply a different policy that results in deferral of revenue relating to some portion of the milestone consideration.

7. A substantive milestone is a matter of judgment and must be determined only at the inception of the arrangement. To be considered substantive, a milestone must meet all of the following conditions: – It corresponds with the vendor’s performance to achieve the milestone or the enhancement of the value of the delivered item as a result of the vendor’s performance. – It relates solely to past performance. No refund or adjustment based on future performance (penalty or clawback). – It is reasonable relative to all of the deliverables and payment terms.

8. Transition to Update 2010-17 For years beginning on or after June 15, 2010, pending content is applied prospectively, – Unless the vendor elects to adopt on a retrospective basis, with required disclosures. Earlier application is permitted.