Ask the Accounting Community

Hello! 

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Hi Robert, 

The answer will depend on the nature of the service being provided and how you measure progress of that. For example if your advertising service is a stand ready service which is contingent on an external event (like a request to perform an activity within the scope of the contract) then typically that is recognised rateably over the term of the contract UNLESS you are able to demonstrate the pattern of services is predictable and delivered unevenly over time (not that easy in stand-ready service contracts like warranty services, as-needed snow clearance during winter months, etc). If your advertising service is one where clients get up to 1200$ worth of services during a fixed period of time (like one year) then it is more likely to be recognised as consumed so indeed you could end up with 100% utilization of the service in the first month by the client (and of course, after which they would get no further services without an additional purchase). So it really does depend on the nature of what has been promised to them and how you transfer it to them. 

Hope that helps! Feel free to bounce back if you have other questions. 

David 
For context:
Senior Director Rev Rec
TMT

------------------------------
David Wray
Director/Manager
Tourtour
France
------------------------------

Original Message:
Sent: 04-29-2020 11:55 AM
From: Robert Rossetti
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hello!

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Thank you, David.

Based on your points, I may need to continue with our current process. Typically we do not have performance contingencies in our our SOWs, but based on the buy grids, the argument could be that the benefit of service is not transferred until we perform the current month media buys.

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Original Message:
Sent: 04-30-2020 05:31 AM
From: David Wray
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hi Robert,

The answer will depend on the nature of the service being provided and how you measure progress of that. For example if your advertising service is a stand ready service which is contingent on an external event (like a request to perform an activity within the scope of the contract) then typically that is recognised rateably over the term of the contract UNLESS you are able to demonstrate the pattern of services is predictable and delivered unevenly over time (not that easy in stand-ready service contracts like warranty services, as-needed snow clearance during winter months, etc). If your advertising service is one where clients get up to 1200$ worth of services during a fixed period of time (like one year) then it is more likely to be recognised as consumed so indeed you could end up with 100% utilization of the service in the first month by the client (and of course, after which they would get no further services without an additional purchase). So it really does depend on the nature of what has been promised to them and how you transfer it to them.

Hope that helps! Feel free to bounce back if you have other questions. 

David
For context:
Senior Director Rev Rec
TMT

------------------------------
David Wray
Director/Manager
Tourtour
France

Original Message:
Sent: 04-29-2020 11:55 AM
From: Robert Rossetti
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hello!

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Hi Robert,

I am not familiar with ASC 600, however my understanding is that it is almost identical to IFRS15 (the update is performed by FASB in collaboration with IASB). The IFRS 15 indicates following:

Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.

In my opinion, taking into account that it is service contract that goes over time, 1 year, and the service can be provided any time during the year, the recognition would also be done over time.

Let me know how it ends. These discussions are always interesting due to different interpretation of the regulation! J

Best,

Nermina

------------------------------
Nermina Ganic
Supervisor
Madrid
Spain
------------------------------

Original Message:
Sent: 04-29-2020 11:55 AM
From: Robert Rossetti
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hello!

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Thank you for your input, Nermina! 


------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Original Message:
Sent: 04-30-2020 11:22 AM
From: Nermina Ganic
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hi Robert,

I am not familiar with ASC 600, however my understanding is that it is almost identical to IFRS15 (the update is performed by FASB in collaboration with IASB). The IFRS 15 indicates following:

Recognize revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognized as the performance obligation is satisfied.

In my opinion, taking into account that it is service contract that goes over time, 1 year, and the service can be provided any time during the year, the recognition would also be done over time.

Let me know how it ends. These discussions are always interesting due to different interpretation of the regulation! J

Best,

Nermina

------------------------------
Nermina Ganic
Supervisor
Madrid
Spain

Original Message:
Sent: 04-29-2020 11:55 AM
From: Robert Rossetti
Subject: Revenue Recognition ASC 606 Media and Advertising Company

Hello!

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------

Original Message------

Hello! 

I work in the media and advertising space. When it comes to recognizing revenue for working media campaigns, I have always used the deposit method. Our company receives payment upfront for services, which sits as deferred revenue until we perform the obligations of the media-buy grids.Typical these grids are layout on a monthly basis and show a fixed amount. I then recognize a portion of the payment as revenue after each month of service. I use a simply calculation of total contract value divided by term of service and book a fixed amount each month, regardless of service hours incurred to do the work. With ASC 606, I was curious if I could recognize revenue as services are rendered. Ultimately, the total amount of revenue will not change, due to the contract value, but the timing of the revenue will change. For instance, CURRENT METHOD: If a contract value is $1,200 over 12 months, I would recognized $100 a month as each month passed based on the media buy grid. NEW METHOD: If an employee bills up to $1,200 of service time in the first month, I was wondering if I could recognize the full contract value in the first month of service. Thank you!

------------------------------
Robert Rossetti, CMA
Associate Director of Finance
Philadelphia, PA
United States
------------------------------