January 30, 2009
Audit  Tax  Advisory
Mr. Russell G. Golden
Chairman, Emerging Issues Task Force
Financial Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
Grant Thornton LLP
175 W Jackson Boulevard, 20th Floor
Chicago, IL 60604-2687
T 312.856.0200
F 312.565.4719
www.GrantThornton.com
Via Email to director@fasb.org
Re: File Reference No. EITF0801
Dear Mr. Golden,
Grant Thornton LLP appreciates the opportunity to comment on the draft abstract of EITF
Issue 08-1, “Revenue Arrangements with Multiple Deliverables.” We support the EITF’s
efforts to address concerns regarding revenue recognition in multiple-element arrangements
when fair value as defined in EITF Issue 00-21, “Revenue Arrangements with Multiple
Deliverables,” does not exist for the undelivered element(s). We believe that the proposed
guidance would result in accounting that is more reflective of the economic substance of the
underlying transaction for transactions in the scope of EITF Issue 08-1.
Our responses to the specific questions for which the EITF requested comment in its Notice
for Recipients are as follows.
Estimation of selling price
Question a
Do you agree with the consensus-for-exposure to allow vendors to estimate the selling price of undelivered unit(s)
of accounting when VSOE or TPE do not exist?
Yes. We believe this will resolve many of the practice issues associated with EITF Issue 00-21,
while not compromising the vendor specific objective evidence (VSOE) or third-party evidence
(TPE) concepts included in EITF Issue 00-21.
Question b
Is the guidance in paragraph 17 regarding a vendor’s best estimate operational and does it provide a principle
that could be applied consistently?
Yes.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
2
Allocation of revenue
Question c
Do you agree with the consensus-for-exposure to require the use of the residual method and agree with the limit
on the amount of the arrangement consideration that can be allocated to the delivered unit(s) of accounting?
Yes. However, we believe the EITF could go further and allow consideration to be allocated
among the elements based on relative selling price if VSOE or TPE of selling price for the
delivered element(s) exists. The relative selling price method is more consistent with the
method presented in the FASB’s Discussion Paper, Preliminary Views on Revenue Recognition in
Contracts with Customers. We believe that limiting the amount of consideration that can be
allocated to the delivered element(s) carries over language from EITF Issue 00-21 and SOP 972 that was intended to prevent inappropriate revenue acceleration, rather than moving closer to
principles-based guidance, and could result in revenue recognition that does not reflect the
economics of the transaction.
Question d
Is the application of the residual method, including the limit, understandable and operational?
Yes. However, introducing the limit on the amount allocable to the delivered element(s) may
increase the incentive for a vendor to inappropriately conclude that neither VSOE nor TPE
exist for the delivered element(s) so that the vendor can apply the residual method without a
limit on the amount allocated to the delivered element(s).
Disclosure
Questions e, f and g
Is the required disclosure operational?
If you agree that the disclosure is operational, will it provide sufficient information for users of the financial
statements to evaluate the use of estimates when an entity allocates arrangement consideration to revenue
transactions?
If not, please describe what disclosures you believe should be required. Should the required disclosures include
additional quantitative disclosures? If so, please describe the specific quantitative disclosures you believe should be
provided and how those disclosures will improve a user’s ability to evaluate reported revenues.
Disclosing the qualitative and quantitative information as suggested in paragraph 20 of the draft
abstract for EITF Issue 08-1 may be useful to certain users in evaluating reported revenues, but
we question the cost-benefit of such disclosures. Unlike qualitative and quantitative information
related to fair value measurements under FASB Statement 157, Fair Value Measurements, which
may improve a user’s ability to evaluate reported results and thus, form a conclusion regarding
future results, such information about estimates in revenue arrangements is not predictive of
future results. In addition, requiring such information, including separate disclosure of
information related to individually significant arrangements may lead to lengthy disclosures and
therefore detract from key disclosure information. We believe a vendor should disclose how it
determines selling price for different units of account, such as VSOE, TPE, or best estimate of
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
3
selling price and the method of allocating arrangement consideration to the units of accounting,
in addition to the disclosure requirements in paragraph 19 of the draft abstract.
Transition
Question h
Do you agree that prospective adoption should be required?
Yes.
Question i
Do you believe that the transition disclosure will be useful to users of the financial statements?
We do not agree that separate disclosure of the amount of revenue recognized during the
reporting periods and the amount of revenue deferred at the end of the period under EITF
Issue 00-21 and EITF Issue 08-1 would be a useful transition disclosure to users of the
financial statements. Requiring a distinction between EITF Issue 00-21 and EITF Issue 08-1
revenue would distinguish revenue from arrangements entered into before adoption of EITF
Issue 08-1 and those entered into after. However, we do not believe the information provided
would enable users to evaluate the impact of adopting EITF Issue 08-1 or predict future
revenues. We believe that disclosure of the amount of total deferred revenue as of the end of a
period would give financial statement users some information to predict future revenues on
existing arrangements, but requiring vendors to distinguish between EITF Issue 00-21 and
EITF Issue 08-1 deferred revenue would not add to the usefulness of that information.
Question j
If not, what transition disclosures should be required?
This is a question best addressed by financial statement users.
Question k
Should early application of this Issue be permitted after an entity has issued interim financials for the current
fiscal year?
Yes.
Examples
Question l
Do you agree with the illustrative examples provided in Exhibit 08-1B and are those examples useful in
applying the principles of this Issue consistently?
Yes. However, we believe Example 6 is unclear as it relates to the interpretation of paragraph 8
of the draft abstract of EITF Issue 08-1 and whether or not a vendor would be required to
reassess the amounts allocated (estimated selling price) to the undelivered units of accounting
as each item in an arrangement is delivered or if this assessment is only performed once upon
inception based upon the information known at that time. Currently, paragraph 8 of the draft
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
4
abstract indicates that a vendor should evaluate all deliverables in an arrangement to determine
whether they represent separate units of accounting at inception and as each item in the
arrangement is delivered. The criteria for this evaluation are in paragraph 9 and do not include
the concept of evaluating evidence of selling price. If the intent is for the amounts allocated to
the remaining elements to be reassessed as each item in the arrangement is delivered, the draft
abstract of EITF Issue 08-1 should be modified to clarify this fact.
Other drafting suggestions
We have the following suggestions related to the draft abstract.
• Correct the incomplete sentence at the end of paragraph 1 in the draft abstract, “. . . and the
customer’s.” We note that the marked version of the draft abstract included in the
November 13, 2008 meeting minutes includes the following complete sentence. “These
vendors transfer the deliverables to the customer and performance may occur at different
points in time or over different periods of time, and the customer’s payments for these
deliverables may be fixed, variable, or a combination of fixed and variable.”
• Consider enhancing the discussion of stand-alone value in paragraph 9a and include
examples demonstrating the principles around stand-alone value. We are concerned that
there will be increased focus on this criterion once the need for fair value for the undelivered
element(s) is removed and enhanced discussion and further examples would assist entities in
applying the criterion.
We appreciate the opportunity to comment on the draft abstract and would be pleased to
discuss our comments with the FASB staff. If you have any questions, please contact Lynne
Triplett, Partner, Accounting Principles Consulting Group, at 312.602.8060.
Very truly yours,
/s/ Grant Thornton LLP
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd