Variable consideration: How it impacts your top and bottom line

Variable consideration in revenue contracts is more common than you might think, and the accounting for it can require  a considerable amount of judgment. To help make sure you have the right revenue recognition, we’ve asked Angela Fergason, a partner in our National Office, to join host Heather Horn to walk through the guidance. Topics include: 0:47 - The many forms of variable consideration. We begin with an overview of variable consideration under the new revenue guidance and share some common examples of the common types of variable consideration in a revenue contract. 6:25 - Estimating variable consideration. We cover the two methods for estimating variable consideration at contract inception: the “expected value” method and the “most likely amount” method.9:36 - Constraint on variable consideration. An estimate of variable consideration is subject to a constraint. Listen as Angela breaks down what exactly this means.15:49 - Exceptions for estimating variable consideration upfront. There are a few situations when you might not have to estimate variable consideration upfront. Angela walks through a few of the scenarios.23:24 - Revenue vs lease components. We frequently see contracts with revenue and lease components. Angela explains how the revenue and lease models differ when contracts have variable fees.25:38 - Reminders and disclosures. We close by wrapping-up with key takeaways and an overview of the multiple disclosure requirements. Want to learn more? See chapter 4 of PwC’s Revenue from contracts with customers guide.Angela Fergason is a partner in PwC's National Office with over 20 years of experience, specializing in accounting for revenue and employee compensation arrangements. She is  a frequent speaker on accounting and financial reporting topics and is a contributor to many PwC National Office publications, including our accounting guides on revenue and stock-based compensation.Heather Horn is PwC’s National Office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters. She is the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series, as well as periodic webcasts for the power and utilities industry. With nearly 30 years of experience, Heather’s accounting and auditing expertise includes financial instruments and rate-regulated accounting.Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected] you enjoy this episode? Text us your thoughts and be sure to include the episode name.