KEY POINTS OF SAB 101

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KEY POINTS OF SAB 101
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1. Transfer of TitleTransfer of title is not
always necessary for revenue to be recorded
provided that the only rights retained with the
title are those enabling recovery of the
merchandise in the event the customer fails to
pay. This is often important for companies with
foreign operations.
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2. Substantial PerformanceFailure to
deliver one item and/or perform one service
specified in the sales agreement does not always
preclude immediate recognition of all revenue but
it will if(a) the remaining obligation is not
inconsequential or perfunctory, or(b) the
transaction does not qualify for treatment as a
multiple-element arrangement.
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3. Customer AcceptanceCustomer
sign-off is not always necessary to recognize
revenue even if a customer acceptance provision
is a normal part of the agreement. This guidance
is important to equipment manufactures,
particularly semi-conductor equipment
manufacturers, and others whose sales agreements
generally contain customer acceptance provisions.
Provided the seller can objectively demonstrate
that the criteria specified in the acceptance
provisions are satisfied, revenue can be
recognized when all other criteria are met even
if formal customer acceptance has not been
received.
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4. Nonrefundable Up-Front FeesWhen
evaluating revenue recognition in circumstances
involving the receipt of a nonrefundable up-front
payment from the customer, the customers
perspective on the transaction should be
considered.When the customer is paying for a
service that is delivered over time, revenue
recognition should occur over time. When the
customer is paying for multiple elements, revenue
may be able to be recognized as the various
elements are delivered. The additional guidance
in this area is particularly important to the
pharmaceutical, biotechnology and
telecommunications industries.
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5. Incremental Direct Costs Only
incremental direct costs of transactions for
which revenue has been deferred may be
capitalized and deferred. The costs capitalized
should be charged to expense proportionally and
over the same period that deferred revenue is
recognized as revenue. Deferral of incremental
direct costs is permitted but not required.
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6. Fees Refundable Even After Service Has
Been PerformedFees for services that may be
refundable even after the service is provided may
be recognized over the service period (provided
certain criteria are met) or deferred and
recognized when the refund privilege expires at
the companys option.