The standard requires accounting for “significant” financing components. Some stakeholders have questioned whether it would be acceptable to account for financing components that are not significant.

The staff understands that the genesis of this question has to do with the fact that the assessment of the significance of the financing component is based on an evaluation of the contract. That is, an entity might deem the financing to not be significant at the contract level but might prefer to account for it if it is material at the entity level (although the standard does not require an entity level assessment of materiality in this area). Additionally, an entity may have a portfolio of contracts that include financing components for which some are significant, and others are insignificant. In this scenario, it would likely be less burdensome to implement the standard if the entity accounts for the financing component across all contracts in its portfolio instead of having to apply two methods of accounting (that is, apply financing component accounting to some and not to others). The Board’s rationale for placing the significance assessment at the contract level is described in paragraph BC234 of the basis for conclusions of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The rationale for assessing significance at the contract level was to reduce the burden for entities. That is, it was for practical reasons rather than conceptual reasons. The staff is not aware of any guidance in the standard that would preclude an entity from deciding to account for a financing component that is not significant.