Spring 2015 issue of Horizons

to which the company will be entitled, the company uses the expected value method because it is the method that the company expects to better predict the amount of consideration to which it will be entitled. The company also considers accounting guidance and relevant factors on constraining estimates of variable consideration to determine whether estimated amounts of variable consideration can be included in the transaction price. Although the returns are outside the company’s influence, it has significant experience in estimating returns for its products and customer class. In addition, the uncertainty related to sales returns will be resolved within a short time frame (that is, the 30-day return period). Thus, the company has concluded that it is probable that a significant reversal in the cumulative amount of revenue recognized will not occur as the uncertainty is resolved.

An example of the new footnote disclosure resulting from the expanded requirements of ASU 2014-09 is below. It should be noted that this is an example for a nonpublic company. The new disclosure requirements for publicly traded entities are much greater than what is included in the example below. Sales are recorded when products are shipped to customers. Payment is typically due within 10 days of shipment. Provisions for estimated returns and allowances are provided for in the same period the related sales are recorded. The company applies accounting guidance related to estimated returns and allowances to its portfolio of contracts because it reasonably expects that the effects on the financial statements from applying this guidance to the portfolio would not differ materially from applying the guidance to the individual contracts within the portfolio. Because its contracts provide customers with a right of return, consideration received from the customer is variable. To estimate the variable consideration

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Fred Kostecki, CPA, CGMA — St. Louis Partner-In-Charge Assurance Services Group 314.290.3398 fred.kostecki@rubinbrown.com

Rodney Rice, CPA, CGMA — Denver Partner Assurance Services Group 303.952.1233 rodney.rice@rubinbrown.com

David Duckwitz, CPA — Kansas City Director of Quality Control Assurance Services Group 913.499.4433 david.duckwitz@rubinbrown.com

Todd Pleimann, CPA — Kansas City Kansas City Managing Partner 913.499.4411 todd.pleimann@rubinbrown.com

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