Revenue Recognition Milestone Method

1. Revenue RecognitionMilestone 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.