By Brett Sinsabaugh, CPA, CCA, Partner

FinREC clarifies revenue sharing rules under FASB ASC 606 for plans.
The American Institute of Certified Public Accountants (“AICPA”) Financial Reporting Executive Committee (“FinREC”) has issued a new recommendation as it relates to Employee Benefit Plans and how revenue should be handled under new rules from the Financial Accounting Standards Board’s (“FASB”).
FinREC issues interpretive guidance, publications, and advisories that help ensure consistency and clarity in financial reporting practices. The committee seeks to provide technical expertise, guidance, and advice on accounting matters, addressing emerging financial reporting issues, and generally accepted accounting principles (“GAAP“) interpretations. However, as FinREC does not directly set accounting standards, such as the FASB, it contributes to the development of best practices and interpretations of those standards.
Key insights on revenue sharing arrangements
The new FinREC recommendation offers guidance regarding accounting for revenue sharing arrangements in accordance with FASB ASC 606, Revenue from Contracts with Customers. FinREC states that revenue sharing amounts are not considered ASC 606 revenue. The intention is to reduce administrative costs, as there is no payment made for delivering goods, providing services, or performing other activities on behalf of investment managers. It is important for plan sponsors and administrators to understand their plan’s treatment of revenue sharing transactions, as well as determining the appropriate presentation, and to consider all the relevant facts and circumstances, including terms of such agreements.
In accordance with the Audit and Accounting Guide, Employee Benefit Plans, FinREC believes the presentation in plan financial statements should be applied on a consistent basis, and consideration as to whether the presentation of revenue sharing amounts should be considered a significant accounting policy that should be disclosed in the plan’s notes to the financial statements.
If you need further expansion or have specific questions about these concepts as it relates to your company’s 401(k) or other employee benefit plan audit, please contact your Keiter Opportunity Advisor.
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.