Revenue accounting reset – Variable consideration

PwC's accounting podcast

We continue our revenue accounting miniseries with an episode taking a closer look at variable consideration—an essential and sometimes complex element in determining transaction price. From performance bonuses to volume-based rebates, we explore how to estimate and constrain variable amounts as well as when key exceptions apply.

In this episode, we discuss:

• 0:58 – Why variable consideration is a critical element of the ASC 606 model
• 7:00 – The general model for estimating variable consideration
• 9:02 – Applying the constraint on the amount of variable consideration
• 18:25 – Common types of arrangements that include variable consideration, such as volume-based rebates and discounts
• 20:59 – Key exceptions to the general model:
  • 21:10 – Sales- or usage-based royalty exception
  • 26:04 – Variable consideration allocation exception
  • 30:24 – Right-to-invoice measure of progress exception

For more information, see chapter 4 of our Revenue from contracts with customers guide. You can also listen to the first episode in this series, Revenue accounting reset – Recognizing revenue.

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About our guests

Angela Fergason is a partner and standard setting leader in PwC's National Office who specializes in accounting for revenue and employee compensation arrangements. She also consults on a range of financial reporting issues impacting technology companies.

Chris Bourdon is a partner in PwC's National Office who specializes in accounting for revenue, inventory, and employee compensation arrangements. He also consults on a range of financial reporting issues impacting technology, media, and entertainment companies.

About our host

Heather Horn is the PwC National Office Sustainability and Thought Leader, responsible for developing our communications strategy and conveying firm positions on accounting, financial reporting, and sustainability matters. In addition, she is part of PwC’s global sustainability leadership team, developing interpretive guidance and consulting with companies as they transition from voluntary to mandatory sustainability reporting. She is also the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series.

Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected].

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1. Revenue accounting reset – Variable consideration (00:00:00)

2. Why variable consideration is a critical element of the ASC 606 model (00:00:58)

3. The general model for estimating variable consideration (00:07:00)

4. Applying the constraint on the amount of variable consideration (00:09:02)

5. Common types of arrangements that include variable consideration, such as volume-based rebates and discounts (00:18:25)

6. Key exceptions to the general model: (00:20:59)

7. Sales- or usage-based royalty exception (00:21:10)

8. Variable consideration allocation exception (00:26:04)

9. Right-to-invoice measure of progress exception (00:30:24)