Revenue for the aerospace and defense industry
Industry Supplement | December 2016
KPMG’s insights on ASC 606 implementation. With the new revenue recognition standard effective date approaching, KPMG reports on the most significant industry issues.
Applicability
- Company that is in the aerospace and defense industry
- Company assessing the impact of the new requirements of ASC 606
- Company at an advanced stage of its ASC 606 implementation
Effective dates
Mandatory effective dates and early adoption provisions:
Annual periods:
For public business entities and certain not-for-profit entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017.
For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2018.
Interim periods:
For public business entities and certain not-for-profit entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.
For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.
Early adoption:
For public business entities and certain not-for-profit entities the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.
For all other entites the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.
Key impacts
- Determining whether a contract exists can be complicated in the A&D industry where contracts often take a long time to negotiate and may be subject to many approvals.
- Determining the contract term affects the application of other aspects of the guidance, including the measurement and allocation of the transaction price.
- The unit of account (performance obligation) must be determined on a contract-by-contract basis.
- A&D contractors in the scope of the series guidance may see an acceleration in the timing of revenue, cost and margin recognition.
- The accounting for variable consideration, including but not limited to award fees, claims, incentives and penalties may differ from today.
- The amount of revenue recognized for long-term contracts may be affected by a significant financing component.
- A&D contractors that currently recognize revenue at the point in time when products are shipped or delivered may be required to recognize revenue over time.
- Revenue will be recognized earlier for many A&D contractors that use the units-of-delivery method under current US GAAP.
- The timing for recognizing cost and revenue related to activities before the existence of a contract may change.
- A&D contractors will no longer have the choice to expense commissions as incurred if certain criteria are met.
- Pre-production activities may be a separate performance obligation.
- The previous revenue recognition guidance did not include a general framework for accounting for all contract modifications – that has now changed.
- Accounting for onerous contracts is largely unchanged under the new standard.
Report contents
- Specific issues for companies in the aerospace and defense industry
- Expanded disclosures
- Effective dates and transition
- Impact on the organization
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