sab104
SAB 104
Arrangements
Final understanding between the parties as to the specific nature and terms of the transaction.
Customary business practice must be considered
- Signed contracts, purchase orders, or telephone orders
Form of customer agreements
- Use of written contracts
- Have both customer and vendor signatures been obtained
Existence of side agreements
- Could be verbal or written
- Should be considered part of the customer arrangement
Customer Acceptance Provisions
The customer is allowed to cancel the arrangement when a seller delivers a product that the customer has not yet agreed to purchase or delivers a product that does not meet the specifications of the customer’s order
- Revenue should not be recognized (sale has not occurred)
a. Acceptance provisions in arrangements that purport to be for trial or evaluation purposes. In these arrangements, revenue should not be recognized until the earlier of when acceptance occurs or the acceptance provisions lapse.
b. Acceptance provisions that grant a right of return or exchange on the basis of subjective matters. The staff believes these provisions are not different from general rights o return, which require the amount of future returns must be reasonably estimable in order for revenue to be recognized prior to the expiration of return rights
c. Acceptance provisions based on seller-specified objective criteria. The staff believes that these provisions are not different from general or specific warranties and should be accounted for as warranties (reliably estimated).
d. Acceptance provisions based on customer-specified objective criteria. While formal customer sign-off provides the best evidence that these acceptance criteria have been met, revenue recognition also would be appropriate, presuming all other revenue recognition criteria have been met, if the seller reliably demonstrates that the delivered products or services meet all of the specified criteria prior to customer
Arrangements
Final understanding between the parties as to the specific nature and terms of the transaction.
Customary business practice must be considered
- Signed contracts, purchase orders, or telephone orders
Form of customer agreements
- Use of written contracts
- Have both customer and vendor signatures been obtained
Existence of side agreements
- Could be verbal or written
- Should be considered part of the customer arrangement
Customer Acceptance Provisions
The customer is allowed to cancel the arrangement when a seller delivers a product that the customer has not yet agreed to purchase or delivers a product that does not meet the specifications of the customer’s order
- Revenue should not be recognized (sale has not occurred)
a. Acceptance provisions in arrangements that purport to be for trial or evaluation purposes. In these arrangements, revenue should not be recognized until the earlier of when acceptance occurs or the acceptance provisions lapse.
b. Acceptance provisions that grant a right of return or exchange on the basis of subjective matters. The staff believes these provisions are not different from general rights o return, which require the amount of future returns must be reasonably estimable in order for revenue to be recognized prior to the expiration of return rights
c. Acceptance provisions based on seller-specified objective criteria. The staff believes that these provisions are not different from general or specific warranties and should be accounted for as warranties (reliably estimated).
d. Acceptance provisions based on customer-specified objective criteria. While formal customer sign-off provides the best evidence that these acceptance criteria have been met, revenue recognition also would be appropriate, presuming all other revenue recognition criteria have been met, if the seller reliably demonstrates that the delivered products or services meet all of the specified criteria prior to customer