When a customer deposits money with a depository institution (bank), the bank recognizes a liability that typically would be accounted for under Topic 405, Liabilities, because the bank generally has an obligation to deliver cash to the customer upon demand.

As part of the depository agreement, the financial institution generally is obligated to provide the customer with access to the deposited funds, serve as a custodian of the funds, and when applicable, pay interest on the deposits. Customers can access deposited funds through a variety of mechanisms and customers sometimes have to pay a fee (for example, customers might pay fees for use of an ATM or a cashier’s check). Financial institutions sometimes charge customers fees that are not specifically related to the customer accessing its funds, such as account maintenance or dormancy fees.

The amount of deposit fees assessed varies based on many factors, such as the type of customer and account, the quantity of transactions, and the size of the deposit balance. Financial institutions charge, and in some circumstances do not charge, fees to earn additional revenue and influence certain customer behavior. An example is a bank that does not charge a monthly service fee, or does not charge for certain transactions, for customers that have a high deposit balance. Deposit fees can be considered either transactional in nature (such as ATM fees, wire transfers, foreign exchange, and stop payment orders) or non-transactional (such as account maintenance and dormancy fees).

Questions have arisen about whether services arising from depository arrangements and the related fees are within the scope of Topic 606 or if they are excluded from the scope of Topic 606 and are, instead, within the scope of another Topic, such as Topic 405.

The staff’s view is that deposit fees are within the scope of Topic 606. The scope exception in paragraph 606-10-15-2 only relates to the deposit liability (that is, Topic 405 only addresses the accounting for the deposits that the customer gives to the financial institution, not the related fees). In the staff’s view, the lack of guidance for deposit fees in Topic 405 (or other areas of GAAP) means that Topic 606 is the only applicable guidance to apply. This view aligns with the Board’s intent described in paragraph BC61 in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), that contractual rights or obligations that fall under other Topics, where specific guidance exists in those topics, would not be within the scope of Topic 606. The staff understands that under current GAAP, in the absence of specific detailed application guidance in Topic 405, some financial institutions apply the principles within the SEC’s SAB Topic 13, Revenue Recognition, codified as paragraph 605-10-S99-1, for guidance on how to account for the deposit-related fees. In addition, the staff understands that those fees commonly are presented as revenue (that is, non-interest income).

Some stakeholders asserted that application of Topic 606 for deposit-related fees likely would not lead to significantly different recognition and measurement outcomes when compared with current practice. Considering the straightforward nature of the arrangements, this assertion intuitively seems reasonable to the staff (although the staff, of course, is not familiar with how every entity accounts for the fees today).

However, some stakeholders have raised concerns that some in practice might think that (a) significant changes could result from applying Topic 606 and/or (b) financial institutions might need to engage in significant implementation efforts to adopt Topic 606 for deposit fees.

To try to be helpful to stakeholders and potentially reduce the implementation effort, the staff has included below some considerations related to applying Topic 606 to deposit fees.

An entity applies Topic 606 to the contract term. The contract term can have a significant effect on the application of Topic 606 because it affects the identification of promised goods or services, the transaction price, and the allocation of the transaction price (among other things).

The staff understands that customers generally have the right to cancel their depository arrangements (and retrieve their deposited funds) at any time without penalties compensating the other party. As a result, the contract term would be a day-to-day (or minute-to-minute) contract in which the termination clause is akin to a renewal right, and each day (or minute) represents a renewal of the contract. The staff understands that some arrangements provide both parties with a unilateral right to terminate without compensating the other party. If the contract term is determined to be daily, then the recognition outcomes likely would be similar regardless of the number of performance obligations identified.

Consider the following examples:

The staff thinks limiting the amounts recognized as revenue to the amounts under the current

contract is consistent with paragraph BC186 in Update No. 2014-09.

Some stakeholders asked the staff about applying Topic 606 to deposit account fee structures whereby some customers pay fees and other customers pay no fees (or pay reduced fees). In those situations, some stakeholders questioned how to determine the transaction price when the amount of expected cash consideration (zero) is not equal to the price an entity charges other customers. Some stakeholders questioned whether the application of Topic 606 would lead to a financial statement gross up by recognizing revenue with an equal offset to interest expense.

For “premier” customers for which no fees are charged, the staff thinks an entity should consider the guidance for determining the transaction price (Step 3 of the new revenue guidance), which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. In these situations, the only consideration received by the entity is the customer’s deposit, which can be used for lending or other purposes; however, the deposit itself is outside the scope of Topic 606.

The staff’s understanding is that these arrangements do not include an enforceable right whereby an entity is entitled to fees from premier customers. While some might view the customer providing the bank with a deposit as similar to a loan that might require an adjustment to the transaction price as a significant financing component under Topic 606, the staff thinks those stakeholders should consider the short-term nature of the contract, which likely would indicate that the financing component is not significant because there is not a long period of time between payment and transfer of the services. Furthermore, entities could avail themselves of the practical expedient for contracts under one year.

Consistent with current practice, the staff thinks there are no fees within the scope of Topic 606 if no fees are charged because the entity is not entitled to fees (in the form of cash or noncash consideration). Consider the following example. During the first day of the month, the premier customer could access its funds many times and pay no fees (despite other customers paying fees to access funds in a similar manner). Immediately thereafter the premier customer could terminate the contract and the entity is entitled to no consideration from the premier customer for all of the access that occurs on the first day of the month.

In addition, the staff understand this gross-up approach is not applied in practice today, and Topic 606 did not change the accounting for interest on deposit liabilities.

The staff also considered the implications related to the disclosure requirements in Topic 606. Some of the staff’s thoughts about the application of some of the disclosure requirements in Topic 606 are below. However, an entity will need to evaluate the applicability of all of the disclosure requirements in Topic 606 to its specific contracts and facts and circumstances (for example, consider whether deposit fee revenue is material in considering the appropriate level of disclosure).

If a depository arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, then the duration of the contract does not extend beyond the services performed. Because of the short duration, several of the disclosures in Topic 606 would not apply. For example, contract balances and remaining performance obligations related to the depository arrangements might not exist, so the disclosures in paragraphs 606-10-50-8 through 50-11, and paragraphs 606-10-50-13 through 50-16 might not apply. Additionally, because an entity generally would not need to make many judgments that would significantly affect the amount and timing of deposit fee revenue, there might not be much to disclose about judgments (paragraphs 606-10-50-17 through 50-20).

However, it is possible that other disclosure requirements might be more likely to be applicable on the basis of the specific contracts and the facts and circumstances (for example, whether deposit fee revenue is material in considering the appropriate level of disclosure). Two examples include, but are not limited to, the following:

This brief discussion on disclosure was meant to highlight that because of the straightforward nature of revenue recognition for deposit fees, the staff thinks that some of the disclosure requirements in Topic 606 would not be applicable. However, each entity will need to make an assessment for itself based on its specific contracts and facts and circumstances.