— Rather than requiring a provider to establish a fixed or determinable price to recognize revenue, the new standard introduces the concept of variable consideration. Under variable consideration, if a provider is willing to accept a lower price than what’s stated in a contract— whether implied through past experience or via discounts, rebates, price concessions—that amount must be factored into determining the transaction price.

For implicit price concessions, entities need to consider historical, current, and anticipated information to estimate the true transaction price.

Practical Implications for Public and Private Companies

The new standard took effect for public companies at the beginning of 2018. This means private companies beginning to plan for implementation of the standard in 2019 may look to their public peers for help interpreting the new guidance and identifying the impact the rules are already having on companies.

Recent Form 10-Ks filed by companies in the diagnostic space show us two major impact areas:

• Acceleration of revenue recognition as companies move from cash to accrual accounting

• Recharacterization of bad debt to revenue reduction

Acceleration of Revenue Recognition

Under the new standard of variable consideration, providers must record an estimate of the transaction price as revenue at the time of delivery. The estimate is then monitored and adjusted as necessary based on actual collection experience.

This may result in the acceleration of revenue recognition because a provider will no longer have the option to defer recognizing revenue until cash receipt due to uncertainties around transaction price and collectability.

Recharacterization of Bad Debt

Certain amounts that were classified as bad-debt expense under previous guidance may now be considered an implicit price concession in determining transaction price. This means those amounts may be accounted for as a reduction in net revenue instead of a bad-debt expense recorded under general and administrative expenses.

Many of these changes to policies, procedures, and results will impact how companies interpret information. Accordingly, businesses will need to use all reasonably available information—and their best judgment—to identify whether contracts exist, collectability is understandable, and transaction prices are clear.

Alyssa Strobel is a senior manager at Moss Adams and serves private and public companies in the life science, technology, and manufacturing industries, focusing on financial statement audits and SEC reporting, and other compliance services. Alyssa can be reached at (858) 627-1421 or

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