1. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC1 ASU 2014-09, ASC 606 Revenue from Contracts with Customers and Proposed ASU, Deferral of Effective Date Proposed Changes to Transition Method, Effective Date, and Early Adoption Ashwinpaul C. Sondhi President A. C. Sondhi & Associates, LLC May 2015 www.acsondhi.com

2. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC2 ASC 606 Revenue From Contracts with Customers Proposed Amendments – Deferral of the Effective Date  On April 29, the FASB issued an ASU that proposed deferral of the effective date of ASC 606 for all entities. The comment deadline is May 29, 2015. The IASB has also proposed a one-year deferral of IFRS 15. The comment deadline is July 3, 2015. The Board votes will occur after a review of comments received.  Bases: FASB staff outreach concluded that many entities need more time to implement the new standard. Entities also need time to evaluate proposed changes, the deliberations of the Joint Transition Resource Group (TRG), and possible additional amendments. The FASB expects amendments and technical changes to be substantially completed by the end of 2015.

3. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC3 ASC 606 Revenue From Contracts with Customers Proposed Amendments – Deferral of the Effective Date  Stakeholders’ Concerns: Software solutions and IT departments may not be ready until after the amendments are completed – needed manual processing would be expensive, Time needed to design and implement new internal controls – this depends on proposed and expected amendments and as yet undeveloped IT systems, Assessment of contractual changes needed to adapt to the new standard, and Training needs of preparers, reporting staff, FP&A teams, and internal audit personnel. Note: Investors have similar concerns.

4. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC4 ASC 606 Revenue From Contracts with Customers Proposed Amendments – Deferral of the Effective Date Additional Issues:  Some constituents argued against mandatory deferral of the effective date citing incremental costs to entities prepared to meet the original effective date.  The proposed ASU asks whether the Board also should permit an optional two-year deferral limited to entities that use the full retrospective method. Question: Assuming the two-year deferral option is provided, how would the FASB (or, the SEC?) deal with entities that elect the two-year but subsequently assert that the full retrospective is onerous?

5. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC5 ASU 2014-09, ASC 606 Proposed ASU, Deferral of Effective Date Proposed Effective Date – Public Entities  The new revenue standard would be effective for reporting periods beginning on or after December 15, 2017, including all interim periods therein.  Early application permitted only as of annual reporting periods beginning after December 15, 2016 (the original effective date), including interim reporting periods within that reporting period. Note: In addition to public entities, this deferral also applies to not- for-profit entities that have issued, or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and an employee benefit plan that files or furnishes financial statements with or to the Securities and Exchange Commission

6. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC6 ASU 2014-09, ASC 606 Proposed ASU, Deferral of Effective Date Proposed Effective Date – All Other Entities  The new revenue standard would be effective for reporting periods beginning on or after December 15, 2018, and interim and annual reporting periods beginning after December 15. 2019. Such entities may elect to apply the new revenue standard as of: 1. An annual reporting period beginning after December 15, 2016, including interim periods within that reporting period (the original public entity effective date). 2. An annual reporting period beginning after December 15, 2016, and interim periods within annual periods beginning one year after the annual reporting period in which an entity first applies the standard.

7. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC7 ASU 2014-09, ASC 606 Revenue from Contracts with Customers Transition, Effective Date, and Early Adoption Transition Method - Basic Principle: Full retrospective application.  Rationale: Retrospective application would provide useable trend information, consistency, and promote comparability.  Boards were mindful of the fact that retrospective application would be burdensome for companies with long-term contracts.  Other concerns included the application of new standards, for example, difficulties in estimating: Standalone selling price at contract inception, and Variable consideration. Note: The ASC 606 guidance on Significant Financing Components applies to payments received in advance – an example of contractual terms not addressed by current GAAP.

8. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC8 ASU 2014-09, ASC 606 Revenue from Contracts with Customers Transition, Effective Date, and Early Adoption Transition Method - Full retrospective application.  Mitigating factors: Both ASC Topic 250, Accounting Changes and Error Corrections, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors consider impracticability, and The long time between initial issuance and the original effective date.

9. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC9 ASU 2014-09, ASC 606 Proposed ASU, Deferral of Effective Date Transition Full Retrospective Method – Paragraph 606-10-65-1 (d) (1) retrospectively  An entity may elect to apply the new revenue guidance retrospectively to each prior reporting period presented including the optional practical expedients in paragraph 606-10-65-1 (f).  Retrospective application is in accordance ASC Topic 250 and IAS 8.  U.S. Companies would follow ASC paragraphs 250-10-45-5 through 45-10 with respect to accounting changes and error corrections as well as providing disclosures in accordance with paragraphs 250-10-50-1 through 50-3.

10. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC10 ASU 2014-09, ASC 606 Transition Paragraph 606-10-65-1 (f). Entities using the retrospective transition method in Paragraph 606-10-65-1 (d) (1) may use one or more of the following practical expedients: For completed contracts: 1. An entity need not restate contracts that begin and end within the same annual reporting period. 2. That include variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

11. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC11 Session 10 Transition Paragraph 606-10-65-1 (f) (Continued): 3. For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue (see paragraph 606-10-50-13).

12. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC12 ASU 2014-09, ASC 606 Transition Paragraph 606-10-65-1 (f) (Continued): 606-10-50-13 An entity shall disclose the following information about its remaining performance obligations: a. The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period b. An explanation of when the entity expects to recognize as revenue the amount disclosed in accordance with paragraph 606-10-50-13(a), which the entity shall disclose in either of the following ways: 1. On a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations 2. By using qualitative information.

13. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC13 ASU 2014-09, ASC 606 Transition Paragraph 606-10-65-1 (g).  For any of the practical expedients in (f) that an entity uses, the entity shall apply that expedient consistently to all contracts within all reporting periods presented.  In addition, the entity shall disclose all of the following information: 1. The expedients that have been used 2. To the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients.

14. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC14 ASU 2014-09, ASC 606 Transition Transition – Paragraph 606-10-65-1 (d) (2)  Alternatively, an entity could apply the new standard only to contracts that are not completed under the legacy IFRSs and U.S. GAAP at the initial application date (for example, January 1, 2018, for a calendar year entity);  Such an entity would recognize the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings in the year of the initial application (no restatement of comparative years required) in accordance with Paragraph 606-10-65-1 (h) through 65-1 (i).

15. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC15 ASU 2014-09, ASC 606 Transition Transition (Alternative Method Continued) – Paragraph 606-10-65-1(i)  In the year of initial adoption, these entities would be required to provide the following additional disclosures: a. The amount by which financial statement line item is affected in the current year as a result of the use of the new standard; and b. An explanation of the reasons for significant changes between the reported results under the new and legacy revenue standards.

16. 6/9/2015Copyright 2015 A. C. Sondhi & Associates, LLC16 IFRS 15 Proposed Transition and Effective Date IFRS 15  The effective date is for annual reporting periods beginning on or after January 1, 2018.  Early adoption is permitted. Disclosure of early adoption required. First-time Adopter Alternatives: 1. Full retrospective including practical expedients or 2. Cumulative effect method as of transition date (limited to contracts that are not completed contracts at the date of initial application (for example, January 1, 2018 for an entity with a December 31 year-end).