Accounting for Collaboration Agreements
Deloitte means one or more companies of Deloitte Touche Tohmatsu Limited, a UK limited liability company (« DTTL »), its network of member firms and their affiliates. DTTL and each of its member companies are legally distinct and independent entities. DTTL (also known as « Deloitte Global ») does not provide services to clients. In the United States, Deloitte refers to one or more of DTTL`s U.S. member firms, its affiliates operating in the United States as « Deloitte » and their respective affiliates. Some services may not be available to confirm clients in accordance with public accounting rules and regulations. Please read www.deloitte.com/about to learn more about our global network of member firms. Prior to the publication of ASU 2018-18, asC 606-10-15-3 explicitly excluded certain elements of cooperation agreements from the scope of CSA 606. ASC 606-10-15-3 states in part that a « Counterparty to the Agreement would not be a customer if, for example, the Counterparty has entered into a contract with the Company to participate in an activity or process in which the Parties share the risks and benefits arising from the activity or process (for example. B, the development of an asset in a cooperation agreement) ».
However, the basis of the conclusions of ASU 2014-09 indicates that transactions with participants in a cooperation agreement may fall within the scope of ASC 606 if the counterparty meets the definition of a client under all or part of the terms of an agreement. The basis of the conclusions also highlights that it may be appropriate for an entity to apply the principles of CSA 606 by analogy to a cooperation agreement, even if the counterparty is not considered a customer until other guidance applies. Therefore, some stakeholders expressed concern that ASU 2014-09 and its basis for conclusions regarding the scope of CSA 606 for cooperation agreements appear to be incompatible. For entities participating in cooperation agreements, the impact of the new guidelines can vary considerably, largely depending on the alignment of their existing accounting policies with the guidelines. The FASB ultimately decided not to propose a non-revenue accounting model. However, the new guidelines amend Theme 808 to require an entity to justify its accounting policy for such transactions in accordance with the relevant accounting documentation. If there is no appropriate analogy, the entity may choose a reasonable, rational and consistently applied method of accounting and valuation. It should be noted that neither ASU 2018-18 nor ASC 808 provides guidance on how transactions that fall outside the scope of CSA 606 should be accounted for. Therefore, entities will continue to use the existing CSA 808 guidelines, which state that these transactions will be presented on the basis of an analogy with other relevant documents that may include ASC 606 or, in the absence of a reasonable analogy, using a reasonable, rational and consistently applied accounting policy. However, the guidelines prevent companies from reporting amounts related to transactions in a cooperation agreement that are not made with a customer as income from contracts with customers.
So far, and due to the lack of clear guidance, this is an area in which companies have had significant flexibility to apply their own unique approaches and assessments, resulting in a variety of accounting policies and practices. Companies involved in cooperation agreements could face important implications of the new guidelines, especially if their existing approaches are not in line with the accounting required in the future. According to CSA 808, there may be transactions in a cooperation agreement that are not eligible for the presentation of revenues as « revenues from contracts with customers ». The FASB considered adding a non-pay model to the scope of its draft cooperation agreement, and its staff developed non-revenue guidelines for board review. The Council finally decided not to propose a non-profitability model and to limit the project to determining the scope of revenue forecasts and units of account. However, the FASB amended CSA 808 to add CSA 808-10-15-5C, which deals with the accounting of a unit of account that does not fall within the scope of CSA 606. That paragraph states, in part, that `the unit of account, recognition and measurement for the unit(s) of account outside the scope of other topics, including Theme 606, shall be based on an analogy with the relevant accounting literature or, in the absence of an appropriate analogy, on a reasonable, rational and consistent choice of accounting policies`. This article focuses on accounting for cooperation agreements in accordance with CSA 808. This standalone ASC theme has been around for a long time, but has recently been modified by ASU 2018-18. We first reported on this ASU in this blog.
In this article, we will examine the scope of CSA 808 and then illustrate the presentation and disclosure guidelines for cooperative agreements with an example. .