Table of Contents

1 General Accounting Considerations .01-.52 Introduction .01-.03

Authoritative Status and Effective Date .04-.12

Transitioning to the New Standard .09-.12

Post-Standard Activity .13-.15

Overview of FASB ASU No2014-09, Revenue from Contracts with Customers .16-.33

Step 1: Identify the Contract with a Customer .18-.20

Step 2: Identify the Performance Obligations in the Contract .21-.24

Step 3: Determine the Transaction Price .25-.26

Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract .27-.29

Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation .30-.33

Costs to Obtain or Fulfill a Contract With a Customer .34-.38

Incremental Costs of Obtaining a Contract .34-.35

Costs of Fulfilling a Contract .36-.38

Disclosures .39-.40

Other Topics .41-.52

Presentation of Contract With a Customer .41

Sale With a Right of Return .42

Warranties .43

Principal versus Agent .44

Customer Options for Additional Goods or Service—Material Rights .45

Customer’s Unexercised Rights .46

Nonrefundable Upfront Fees .47

Licensing .48

Repurchase Agreements .49

Consignment Arrangements .50

Bill-and-Hold Arrangements .51

Customer Acceptance .52

2 General Auditing Considerations .01-.206

Introduction .01-.05

Auditing the Five-Step Model of FASB ASC 606 .06-.41

Step 1: Identify the Contract(s) With a Customer .08-.15

Step 2: Identify the Performance Obligations in the Contract .16-.23

Step 3: Determine the Transaction Price .24-.31

Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract .32-.38

Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation .39-.41

Auditing Considerations in the Adoption and Transition to FASB ASC 606 .42-.54

General Audit Considerations Over Revenue Recognition .55-.66

Risk Assessment and Fraud Risk Under FASB ASC 606 .67-.100

Audit Planning .68-.69

Assignment of Personnel and Supervision .70-.71

Establishing an Overall Strategy .72

Audit Risk .73-.76

Understanding the Entity and Risk Assessment .77-.84

Inquiry .85-.86

Reading and Understanding Contracts .87

Reviewing Process Narratives and Process

Flow Diagrams .88

Reviewing Internal Control Manuals, Policy Manuals, or Similar Documentation .89-.90

Discussion Among the Audit Team .91

Assessing the Risks of Material Misstatement .92-.93

Identification of Significant Risks .94-.100

Specific Audit Considerations Over Revenue Recognition .101-.111

Side Agreements .101-.102

Channel Stuffing .103

Related-Party Transactions .104-.108

Significant Unusual Transactions .109

Nature of Business and Accounting for Revenue .110-.111

Potential Accounting Misstatements .112-.120

Identify the Contract With the Customer .114-.115

Identify the Performance Obligations in the Contracts .116

Determine the Transaction Price .117

Allocate the Transaction Price to the Performance Obligations .118

Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation .119-.120

Consideration of Fraud as it Relates to Revenue .121-.128

Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud .126-.127

The Importance of Exercising Professional Skepticism .128

IFRS 15 Versus FASB ASC 606 .129

The Role of Controls Over Financial Reporting in Revenue Recognition .130-.147

Control Environment .132-.137

Risk Assessment .138-.141

2 General Auditing Considerations—continued Control Activities .142-.143

Information and Communication .144-.145

Monitoring .146-.147

Obtaining Audit Evidence .148-.176

Types of Substantive Procedures .151-.158

Potential Issues in Obtaining Audit Evidence .159

Audit Evidence Related to the Five Steps of Revenue Recognition Under FASB ASC 606 .160-.176

Auditing Estimates .177-.181

Potential Area of Focus—Management Bias .180-.181

Management Representations .182-.186

Independence .187-.196

Consultation .189-.191

Situations in Which Auditors Can Assist During Transition .192-.196

Disclosures .197-.198

Smaller Entities .199

Audit Documentation .200-.206

Appendix A Overview of Statements on Quality Control Standards

About the Author

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting professional nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups, and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession's technical and ethical standards.
The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public trust.