BC2. The guidance in Topic 808 originated from EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.” Issue 07-1 defined the characteristics of a collaborative arrangement and primarily provided scope, presentation, and disclosure guidance. The EITF did not provide specific recognition and measurement guidance because of the difficulty in developing a single accounting model that could be applied to the wide range of different collaborative arrangements. There is diversity in practice in how entities account for collaborative arrangements because of the limited recognition and measurement guidance in Topic 808.
BC3. The issuance of Update 2014-09 on revenue from contracts with customers heightened the need for clarity on whether the guidance in Update 2014-09 applies to collaborative arrangements. In March 2015, the FASB received an agenda request asking the Board to clarify the interaction between Topic 606 and Topic 808 and to provide recognition and measurement guidance for collaborative arrangements to address certain areas of diversity. Some stakeholders raised concerns that the guidance in Update 2014-09 appears to be inconsistent with language included in the basis for conclusions of that Update.
BC4. The guidance in Topic 606 specifically excludes parts of collaborative arrangements from the scope of the revenue guidance. The revenue guidance only applies if the counterparty to the contract is a customer. The guidance also states:
A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities. [paragraph 606-10-15-3]
BC5. However, the basis for conclusions of Update 2014-09 explains that transactions with partners or participants in a collaborative arrangement can be within the scope of Topic 606 if the counterparty meets the definition of a customer for some or all parts of the arrangement. The basis for conclusions also explains that the principles in Topic 606 might be appropriate to apply to a collaborative arrangement by analogy even if the counterparty is not considered a customer, provided no other Topic applies.
BC6. The agenda request asked the Board to clarify if, and when, transactions in a collaborative arrangement were within the scope of the revenue guidance in Topic 606. In addition, the agenda request asked the Board to consider amending the guidance in Topic 808 to address certain areas of diversity within collaborative arrangements, including how an entity should determine its units of account and how to account for transactions between collaborative arrangement participants that do not qualify as revenue transactions.
BC7. The Board considered whether a project scope limited only to arrangements conducted outside a legal entity could compound existing differences in accounting models for arrangements that may have similar characteristics but are conducted within a legal entity. After considering feedback obtained through additional research and outreach, the Board added a project to its agenda and limited the project’s scope to targeted improvements that would clarify when transactions between collaborative arrangement participants should apply the revenue guidance in Topic 606. The Board chose not to expand the scope of the project to include arrangements structured within a legal entity (such as joint ventures). See paragraph BC12–BC16 for the Board’s basis for the project’s scope.
BC8. On April 26, 2018, the FASB issued a proposed Accounting Standards Update, Collaborative Arrangements (Topic 808): Targeted Improvements, with comments due on June 11, 2018. The amendments in the proposed Update made the following targeted improvements:
- Clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of the unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.
- Added unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) limited to when an entity is assessing the scope of Topic 606.
- Clarified that, in a transaction that is not directly related to sales to third parties, presenting the transaction as revenue would be precluded if the collaborative arrangement participant is not a customer.
BC9. The Board received 27 comment letters in response to the proposed Update. Overall, respondents supported the Board’s efforts to clarify when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. However, some respondents noted that diversity in practice related to collaborative arrangements will continue to exist given the diverse nature of those arrangements. Some respondents requested that the Board clarify certain aspects of the proposed amendments. The Board considered that feedback during its redeliberations of the issues addressed by the proposed Update, as described in the discussion below.