Some stakeholders have questioned whether goods or services must be delivered or performed consecutively in order to apply the series provision. That is, they question whether the series provision applies when there is a gap or an overlap in the entity’s delivery of goods or performance of services. Consider the following examples:

Although the term “consecutively” is not used in Topic 606, this term is included in the basis for conclusions of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), in various paragraphs including paragraphs BC113 and BC116. This has led some stakeholders to question whether they must assess whether the goods and services are delivered or performed consecutively.

The term “consecutively” was used in previous drafts of the standard but was removed from the guidance before issuance of the final standard. This term also appeared in staff papers prepared during the redeliberations process for the 2011 Exposure Draft that were available to the public. Some stakeholders assert that the removal of that term in the final standard indicates that the Board did not intend to require delivery or performance to be consecutive. That is, those stakeholders assert that the series provision still applies despite gaps in performance or overlapping performance (as long as the criteria in paragraph 606-10-25-15 are met).

In reviewing fact patterns with stakeholders, it seems that some may be over analyzing the use (or lack of use) of the term “consecutively” in the standard. That is, those stakeholders are viewing whether the goods or services are delivered or performed consecutively as a determinative factor in assessing whether the series provision should be applied. In the examples above, those stakeholders appear to think that Example A would result in a single performance obligation (because they would view the entity as transferring the series of distinct manufacturing services consecutively because it is performing the services evenly in producing 1,000 units each month of the 2-year contract period), while Example B would not be a single performance obligation because the entity is not consecutively performing the services (that is, because of the gaps in performance during the 2-year contract period).

The staff notes that the Board provided two criteria to determine if the series provision should be applied in paragraph 606-10-25-15. Those criteria focus on whether each distinct good or service meets the criteria to be satisfied over time and whether the same method would be used to measure the entity’s progress toward complete satisfaction of the performance obligation. While an entity may consider the pattern of performance in determining the measure of progress towards satisfying a performance obligation, the consideration of whether the pattern of performance is consecutive or not is not explicit in the criteria. The staff, therefore, does not think whether the pattern of performance is consecutive is determinative to whether the series provision applies.

The staff further notes, in response to references of some stakeholders to the basis for conclusions of Update 2014-09, that paragraph BC113 does not state the series provision was intended to apply only to “circumstances in which the entity provides the same good or service consecutively over a period of time (for example, a repetitive service arrangement).” Other stakeholders note the term “consecutively” is used in paragraph BC116. The context of the statement in paragraph BC116 is in relation to comments received on paragraph 30 in the 2011 ED. In response to that proposed guidance in the 2011 ED, some stakeholders questioned whether that proposed guidance applied only to delivered goods or services or both concurrently and consecutively delivered goods or services. Paragraph BC116 is intended to communicate that it was the Board’s intent, even in the 2011 ED, for the series provision to apply to consecutively transferred goods or services, largely because the Board did not think any explicit guidance is necessary for concurrently delivered goods or services that have the same pattern of transfer. Paragraph BC116 was not, in the staff’s view, intended to suggest that the series provision only applied to consecutively delivered or performed goods or services.

The staff observes that if the consecutively notion were determinative then stakeholders might reach different judgments about what constitutes a consecutively delivered series of goods or services. For example, assume an entity agrees to perform a manufacturing service which results in the production of 100 widgets each month for 2 years, similar to Example A earlier in this section. Some might say that, in this scenario, the entity will consecutively perform the manufacturing service each month during the contract period. However, if 100 widgets are well below the entity’s manufacturing capacity, such that it produces the 100 widgets in Month 1 on the first day of the month, another entity might conclude that there is no consecutive performance because the entity does not perform any manufacturing service during the rest of Month 1. Requiring that a series apply only to consecutively delivered goods or performed services might result in inconsistent application between entities with similar arrangements based solely on how each entity applies the consecutive notion.

In conclusion, the staff does not think a series of distinct goods or services that meets the requirements in paragraph 606-10-25-15 must be transferred consecutively for the series provision to apply. Therefore, the staff thinks that the fact patterns outlined in both Example A and Example B introduced earlier in this section would be accounted for as single performance obligations in accordance with the series provision (provided the two criteria in paragraph 606-10-25-15 are met).