1. Speaker Firms and Organization:
McGladrey LLP
Brian H. Marshall
Partner, National Accounting Standards Group
Morgan, Lewis & Bockius LLP
Susan D. Resley
Partner
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Presented By:
September 5, 2012
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Sponsored By:

2. Sponsored By:
Morgan Lewis provides comprehensive corporate, transactional, regulatory,
litigation, and labor and employment legal services to clients of all sizes—
from global Fortune 100 companies to just-conceived startups—across all
major industries. We craft and execute business- and industry-specific
strategies that align with today’s evolving economic and regulatory
conditions, and that address the full scope of our clients’ challenges and
opportunities in the courtroom, in the boardroom, within the workforce, and in
government and policy matters.
Founded in 1873, Morgan Lewis comprises some 3,000 professionals—
lawyers, patent agents, employee benefits advisors, regulatory scientists and
other specialists—in 24 offices across the United States, Europe, and Asia.
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McGladrey LLP is the fifth largest U.S. provider of assurance, tax and
consulting services, with more than 6,500 professionals and associates
in 75 offices nationwide. McGladrey is a licensed CPA firm, and a
member of RSM International, the sixth largest global network of
independent accounting, tax and consulting firms.
September 5, 2012

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September 5, 2012

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September 5, 2012

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September 5, 2012

6. Brief Speaker Bios:
Susan D. Resley
Susan D. Resley is a partner in Morgan Lewis's Litigation Practice. Ms. Resley represents companies, brokerage and accounting
firms, as well as individual directors, officers, and employees in investigations and proceedings brought by the Securities and
Exchange Commission, the PCAOB, FINRA and in related shareholder and derivative litigation. She has been retained by a number of
audit and independent board committees to conduct internal investigations on a variety of issues, including accounting, disclosure, and
FCPA.
Prior to joining Morgan Lewis, Ms. Resley was a partner in the securities litigation group of an international law firm in its Silicon Valley
office; before that, she was a partner at another international firm. Previously, she was with the SEC's Division of Enforcement in its
Pacific Regional Office, where she led and conducted investigations involving insider trading, accounting practices, broker-dealer
practices, market manipulation, municipal bond offerings, and offering fraud.
6
► For more information about the speakers, you can visit: http://www.knowledgecongress.org/speakers_2012_Revenue_Recognition.html
Brian H. Marshall
Brian is a partner in the National Accounting Standards Group of McGladrey LLP. His responsibilities include consulting with clients
and engagement teams on complex accounting issues, facilitating training, monitoring standard setting and writing interpretive
guidance. Brian’s primary areas of expertise include general revenue recognition, software revenue recognition, asset impairments,
and business combinations accounting.
Prior to joining McGladrey in 2007, Brian worked in the accounting practices group of a Fortune 50 company serving as a resource on
complex technical accounting matters. Brian also was employed by a Big Four firm for over eight years in various U.S. and European
offices, with his last position being an assurance senior manager. Brian holds a Bachelor of Business Administration degree in
accounting from Holfstra University in New York. He is a licensed CPA in Connecticut and New York, and a member of their
respective state CPA societies along with the AICPA.
September 5, 2012

7. Revenue recognition remains to be a topic of perennial interest in 2012 as it affects almost all
companies. In an effort to resolve incongruent accounting standards and practices on revenue
recognition, FASB and IASB have proposed new revenue recognition standards through an Exposure
Draft in 2011. These new standards, if enacted, would result in the most broad reaching and
fundamental changes to the recognition of revenue in businesses moving forward.
The Knowledge Group is producing a two-hour LIVE webcast to help companies gain a complete
understanding of the nuts and bolts of the proposed standards and its potential impact on their
businesses. Changes to Revenue Recognition in 2012 is a must attend event for accountants, finance
executives and managers, corporate attorneys and other related professionals.
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September 5, 2012

8. Featured Speakers:
8
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

9. Introduction
Brian is a partner in the National Accounting Standards Group of McGladrey LLP. His responsibilities
include consulting with clients and engagement teams on complex accounting issues, facilitating
training, monitoring standard setting and writing interpretive guidance. Brian’s primary areas of
expertise include general revenue recognition, software revenue recognition, asset impairments, and
business combinations accounting.
Prior to joining McGladrey in 2007, Brian worked in the accounting practices group of a Fortune 50
company serving as a resource on complex technical accounting matters. Brian also was employed by
a Big Four firm for over eight years in various U.S. and European offices, with his last position being
an assurance senior manager. Brian holds a Bachelor of Business Administration degree in accounting
from Holfstra University in New York. He is a licensed CPA in Connecticut and New York, and a
member of their respective state CPA societies along with the AICPA.
9
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

10. Overview
 Preliminary views document issued in Dec. 2008
 Exposure draft issued in June 2010
 Revised exposure draft issued in Nov. 2011
 Redeliberations began in July 2012
 Final standard expected in early 2013
10
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

11. Scope
 Applicable to all industries and entities
 Specific contracts with customers outside of scope:
- Financial instruments
- Guarantees (other than warranties)
- Insurance
- Leases
- Certain nonmonetary exchanges
 Contracts with performance obligations in multiple standards
 Recognition and measurement principles also applicable to sales of nonfinancial assets
that are not classified as revenue
11
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

12. Core principle
 Recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services
12
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

13. Five-step approach
13
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
• Approach to comply with the core principle
Identify the
contract with
a customer
(Step 1)
Identify the
separate
performance
obligations in
the contract
(Step 2)
Determine
the
transaction
price
(Step 3)
Allocate the
transaction
price to the
separate
performance
obligations
(Step 4)
Recognize
revenue when
(or as) each
performance
obligation is
satisfied
(Step 5)
September 5, 2012

14. 1. Identify the contract with a customer
 Enforceable agreement between parties
 Can be written, oral or implied
 Combination
- Required for contracts entered into at or near the same time if certain criteria are
met
 Modifications
- Treat separately if separate performance obligation is added and the consideration
is consistent with its standalone selling price
- Otherwise combine with remaining goods or services
14
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

15. 2. Identify separate performance obligations
 Promise in a contract to transfer a good or service
 Account for good or service separately if distinct based on meeting both of the following
criteria:
- Capable of being distinct because the customer can benefit from the good or
service on its own or together with other resources readily available to the
customer; and
- Distinct within the context of the contract because the good or service is not highly
dependent on, or highly interrelated with, other promised goods or services in the
contract
 Indicators of distinct goods or services:
- No significant integration or modification services
- Can be purchased without significantly affecting other promised goods or services
in the contract
- Not part of consecutively delivered goods or services
15
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

16. 3. Determine the transaction price
 Amount of consideration to which an entity expects to be entitled from a customer
 Variable consideration
- Estimate based on probability-weighted or most-likely amount
 Time value of money
- Only affects transaction price if significant financing component exists
- Can ignore if time between payment and transfer of goods or services is one year
or less
16
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

17. 3. Determine the transaction price
 Noncash consideration
- Measure at fair value or by reference to standalone selling price of related goods or
services
 Consideration payable to a customer
- Reduction of transaction price unless in exchange for distinct good or service
 Collectibility
- Not considered in transaction price
- Generally record uncollectible amounts adjacent to revenue
17
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

18. 4. Allocate the transaction price
 Generally based on relative standalone selling prices of separate performance
obligations
 Standalone selling price
- Observable price when sold separately (best)
- Otherwise, estimate based on:
• Cost plus margin
• Adjusted market assessment
• Residual technique allowed if highly variable or uncertain
• Others?
 Subsequent changes in the transaction price are allocated on a relative standalone
selling price basis unless certain criteria are met
18
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

19. 5. Recognize revenue
 Recognize revenue as performance obligations are satisfied based on transfer of control
 Determine if satisfied (and revenue recognized) over time, based on whether entity’s
performance:
- Creates or enhances an asset the customer controls; or
- Benefits customer as entity performs and another entity would not need to
reperform work completed to date (for pure services contracts); or
- Does not create an asset with an alternative use and vendor has right to payment
for performance to date
 Select method of progress toward completion (output or input)
19
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

20. 5. Recognize revenue
 If prior criteria not met, then satisfied at a point in time
 Recognize revenue when customer obtains control based on following indicators:
- Entity has right to payment
- Entity has transferred physical possession
- Customer has legal title and risks and rewards of ownership
- Customer has accepted goods or services
 Recognize amount allocated to performance obligation except for certain variable
consideration, which is limited to reasonably assured amount based on:
- Experience with similar performance obligations
- Whether that experience is predictive of outcome
20
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

21. Contract costs
 Capitalize direct costs of fulfilling a contract or anticipated contract if those costs:
- Generate or enhance a resource that will be used to satisfy performance
obligations in the future (e.g., setup costs); and
- Are expected to be recovered
 Capitalize incremental costs to obtain a contract if expected to be recovered
 Practical expedient to expense costs to obtain a contract as incurred if amortization
period would have been one year or less
21
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

22. Warranties
 Customer option to purchase separately
- Separate performance obligation recognized over time (warranty service)
 No customer option to purchase separately and warranty does not provide an
additional service
- Recognize revenue and accrue expected costs
- Consider following in determination of whether additional service is being
provided:
• Whether warranty is required by law
• Length of warranty period
• Nature of tasks to be performed
22
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

23. Other issues
 Onerous performance obligations
- Removed from model during July redeliberations
- FASB decided to retain existing guidance regarding the recognition of losses from
contracts with customers, including ASC 605-35
 Licensing and rights to use
- Same guidance as for other goods or services
- Revenue recognized at point in time when control transfers if separate
performance obligation
23
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

24. Disclosures / transition / effective date
 Disclosure objective:
- Quantitative and qualitative information regarding nature, amount, timing and
uncertainty of revenue and related cash flows
 Retrospective transition with certain practical expedients
 Effective date no earlier than 2015 for public entities and 2016 for nonpublic entities
24
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

25. McGladrey thought leadership
 FASB and IASB Issue Revised Exposure Draft on Revenue Recognition
 Revised Revenue Recognition Exposure Draft – What Does It Mean For You?
 http://mcgladrey.com/Assurance/Accounting-Resources
 http://mcgladrey.com/Publications/Publication-Subscription
25
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

26. For more information, please contact:
Brian H. Marshall
 brian.marshall@mcgladrey.com
 203.312.9329
26
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

27. Introduction
Susan D. Resley is a partner in Morgan Lewis's Litigation Practice. Ms. Resley represents companies,
brokerage and accounting firms, as well as individual directors, officers, and employees in
investigations and proceedings brought by the Securities and Exchange Commission, the PCAOB,
FINRA and in related shareholder and derivative litigation. She has been retained by a number of audit
and independent board committees to conduct internal investigations on a variety of issues, including
accounting, disclosure, and FCPA.
Prior to joining Morgan Lewis, Ms. Resley was a partner in the securities litigation group of an
international law firm in its Silicon Valley office; before that, she was a partner at another international
firm. Previously, she was with the SEC's Division of Enforcement in its Pacific Regional Office, where
she led and conducted investigations involving insider trading, accounting practices, broker-dealer
practices, market manipulation, municipal bond offerings, and offering fraud.
27
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

28. REGULATOR PERSPECTIVE
• Which Regulators
• Focus of Regulators
• Potential Landmines/Red Flags
28
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

29. REGULATORS
• Securities and Exchange Commission
• Division of Corporate Finance
• Office of Chief Accountant
• Division of Enforcement
• PCAOB
29
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

30. POTENTIAL FOCUS AREA
NO 1: DISCLOSURE
• More Expansive
• Additional requirements for Annual Disclosures
• Customer contracts
• Significant judgments and changes in judgments to apply current guidance
• Assets recognized from costs incurred to obtain or fulfill a contract
30
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

31. POTENTIAL FOCUS AREA NO. 2: JUDGMENT
• Key Area: “Determining the Transaction Price”
• Collectibility???
• Other issues
• Software Revenue Recognition
• Use of Estimates
• Multiple Element Arrangments
31
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

32. POTENTIAL FOCUS AREA NO. 2: JUDGMENT
• Key Area: “Allocating the Transaction Price”
• Selling price of a good or service may be “highly variable or uncertain”
32
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

33. WHY IS JUDGMENT A CONCERN
• “[R]eliable accounting judgments are most dependent on good faith…other
enforcement actions where documentation was produced were the result of certain
inputs or assumptions being fraudulently developed, such as through reverse
engineering to meet earnings targets.”
– Jason Flemmons, Associate Chief Accountant, SEC Division of
Enforcement, December 9, 2009
33
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

34. REVENUE RECOGNITION IS ALWAYS A FOCUS
• SEC PRIORITY
• SEC Enforcement Division evaluates judgment in questioning whether it is made in
good faith or is “accounting hocus pocus”
34
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

35. LANDMINES/THEORIES OF LIABILITY
• Section 10(b): Fraud
• Managing earnings or revenue
• Disclosures are materially false
• SEC and private plaintiffs can bring this claim
• Deceit to Auditors
• Books and Records/Internal controls
ALL BASED ON HINDSIGHT
35
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
September 5, 2012

36. ► You may ask a question at anytime throughout the presentation today. Simply click on the question mark icon located on the floating tool bar on the bottom right side of your screen. Type
your question in the box that appears and click send.
► Questions will be answered in the order they are received.
Q&A:
36
SEGMENT 2:
Susan D. Resley
Partner
Morgan, Lewis & Bockius LLP
SEGMENT 1:
Brian H. Marshall
Partner, National Accounting Standards Group
McGladrey LLP
September 5, 2012

37. 37
• No Commitment Unlimited CLE/CPE for one low monthly fee $49!
• Access Hundreds of Live Webcasts in 2011, 1,000+ Hours Archived
Recordings
• 20,000+ Pages Course Material!
• Subscription Plan Features:
 Access to all LIVE CLE/CPE/CE webcasts
 Download any of the 1,000 hours of Archived webcasts and 20,000+
pages course materials
 You get a code which will allow you to register for any program or
download any recorded webcast for free.
 Month to month plan. Cancel anytime. No commitment!
• For more information about The Knowledge Group’s No Commitment
Monthly Unlimited program, please visit us here:
• https://web.memberclicks.com/mc/quickForm/viewForm.do?orgId=gkc&for
mId=110877
September 5, 2012

38. ABOUT THE KNOWLEDGE CONGRESS:
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September 5, 2012