The primary starting point for addressing revenue recognition matters (unless other specific authoritative guidance exists) is US Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (SAB 104). In the filmed entertainment industry, there is specific authoritative guidance in SOP No. 00-2, “Accounting by Producers or Distributors of Films” (SOP 00-2). SOP 00-2 requires the recognition of revenue from a sale or licensing arrangement when the certain conditions are met.
In addition, a common discussion point in assessing revenue recognition is how each party should account for the reporting of revenues and costs—commonly called “gross” versus “net” accounting which has been addressed in Emerging Issues Task Force (EITF) No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (EITF 99-19).
This edition of Perspectives addresses commonly asked questions in these areas. There is also an additional section addressing other common issues for matters related to revenue recognition that do not fit squarely into the five criteria of SOP 00-2 or under the guidance in EITF 99-19.
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The production and distribution of motion picture and episodic television shows continue to undergo significant changes in the traditional models of developing, financing, and distributing the underlying content. For financial executives and their accounting and reporting staffs, the changes in the overall environment continue to create new complexities and challenges in accounting for filmed entertainment products. This publication can serve as a framework when considering the impact of various transactions on your company’s financial-reporting process.