C3-2 Analyzing the reason for a practical expedient (LO 3-1) One of the practical expedients...
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Accounting
C3-2
Analyzing the reason for a practical expedient (LO 3-1)
One of the practical expedients included in ASC Topic 606 relates to retroactive application of the standard when there is variable consideration. Generally, firms must revise their estimates of the amount of revenue the firm expects to be entitled to receive each accounting period as new information is available. However, in applying the standard retroactively when it is initially adopted, firms may use the transaction price as of the date on which the contract was completed. The result is that the financial statements are not literally as if ASC Topic 606 had always been applied, because it allows for the use of hindsight.
Required:
Why did the FASB decide to include this practical expedient? What would have been the consequences of not including this practical expedient?
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