This article was updated October 28, 2020.

While the intent of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers is to provide a uniformed framework for revenue recognition—regardless of business type or industry—there are certain nuances that agribusiness companies must consider.

If your company hasn’t yet begun implementing the changes to revenue recognition, now is the time to start; the new standard fundamentally changes how companies across nearly every industry should recognize revenue.

In short, the new revenue recognition standard helps eliminate inconsistencies in how businesses across industries account for similar revenue transactions by providing a comprehensive revenue recognition model that applies to a wide range of industries.

Here’s what you need to know for your agribusiness company.

Implications for Agribusiness Companies

Depending on the point of the agribusiness supply chain, agribusiness companies may consist of:

• Growing operations
• Packing, cooling, and storage facilities
• Marketing entities
• Vertically integrated operations with each of these components

Regardless of the type of agribusiness company, the five-step revenue accounting process must be applied to recognize revenue.

How to Get Started

There are four steps to help get you started.

1. Review the revisions, including a new five-step revenue accounting process.
2. Analyze your agreements by performing a thorough analysis of all contracts with your customers according to certain conditions.
3. Apply the five-step process.
4. Disclose revenue, both qualitative and quantitative. To learn more about the additional revenue disclosures, read our article.

Application Approach

Companies should start by scoping their various revenue streams that may include multiple performance obligations, versus revenue streams with a single performance obligation.

For companies that have growing operations wherein revenue is generated through the sale of crops to a processor, the only performance obligation may be delivering the crop to the processor. While it may appear revenue should be recognized upon delivery of the crop, ASC Topic 606 provides that the grower would likely recognize revenue when control of the inventory is passed to the final customer. Of course, each organization should review their specific facts and circumstances to determine proper accounting recognition.

For agribusiness companies that generate revenue through storage or processing-type services, management must consider whether revenue should be recognized over a period of time, as opposed to a point in time, based on the length of storage of a customer’s commodity, or as the processing services are performed.

Practical Expedients

Agribusiness companies may also benefit from certain practical expedients available within ASC Topic 606, one of which allows companies to take a portfolio approach to adopting the new standard if they have multiple contracts with similar characteristics.

Other practical expedients include the treatment of shipping and handling fees, sales taxes, and costs to obtain a contract.

Effective Dates

If your company hasn’t yet begun implementing ASC Topic 606, it will need to act quickly to meet all accounting, presentation, and disclosure requirements.

The amendments in ASU 2020-05 defer the required effective date of ASC Topic 606 for one year for certain entities that haven’t yet issued their financial statements—or made financial statements available for issuance—reflecting adoption of ASC Topic 606.

Those entities may elect one of the following options:

• Adopt the guidance for annual reporting periods beginning after December 15, 2019, and for interim reporting periods within annual reporting periods beginning after December 15, 2020.
• Follow the original effective date of annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.

We’re Here to Help

To learn more about the new revenue recognition standard or how it may impact your agribusiness company, read our Revenue Recognition Guide or contact your Moss Adams professional.