TV stations that are expanding their revenue generation via Web sites and multicasting need to be sure they’re up to date on how to report revenue and expenses for such projects.
The new year and new business opportunities give broadcasters new reasons to love (or at least talk with) their auditors. Expansion into new media, such as Web sites and multicasting, means you need to be extra aware of the latest guidance for reporting revenues and expenses.
Recent BCFM Distance Learning Seminars and the Business Modeling for the Internet Regional Seminar, which is being reprised in Burbank, Calif., on Jan. 25, addressed three of these new-media accounting issues. Let me share them with you.
Revenue recognition: determining whether multiple revenue-generating activities are also multiple units of accounting
While companies may use the same sales reps to sell advertising for their traditional and new media businesses, contractual arrangements that involve multiple revenue-generating activities can require treating the revenues for each “deliverable” as a separate unit of accounting.
The Emerging Issues Task Force (EITF) of the Federal Accounting Standards Board (FASB) issued EITF 00-21 Revenue Arrangements with Multiple Deliverables to assist companies in making this determination. It identifies three criteria for determining whether an arrangement with multiple deliverables consists of more than one unit of accounting:
- Each deliverable has value to the customer on a standalone basis.
- There is objective and reliable evidence of the fair value for each of the items.
- The contractual arrangement addresses the customer’s right of return relative to each deliverable, its delivery is assumed to be probable and fulfillment is substantially in the control of the vendor.
While most advertising or bundled subscriptions sales arrangements would seem to meet these criteria, EITF 00-21 also provides guidance on situations where multiple deliverables are treated as a single unit of accounting and the acceptable method for determining evidence of fair value.
Trade and barter: new media prompts a fresh look at traditional practices
With a number of Internet companies engaging in trade and barter agreements back in the late 1990s, the FASB task force issued EITF 99-17 Accounting for Advertising Barter Transactions. Although written for Internet companies, the issue also applies to advertising barter in traditional media. The guidance addresses two key aspects of trade and barter agreements: how to value them and when they need to appear in a company’s financial reports.
According to EITF 99-17, companies will recognize trade and barter agreements when they are signed and disclose the revenue and expense of these transactions for each income statement period. The amount that they record as fair value for the exchange is based upon what the purchaser would have paid in cash for the goods or service.
Capitalizing Web site development costs
Recognizing that companies were spending large sums of money on developing Web sites, FASB issued EITF 00-2 to assist them in determining which of these costs could be capitalized and which must be treated as ordinary operating expenses.
While development of the business plan for a Web site may be treated as an expense, the planning and development cost for the site itself will be capitalized, according to EITF 00-2. Web site development activities can encompass the costs of purchasing hardware and software to operate the site, graphics and related design costs and data conversions costs involved in entering content onto the site.
Companies may also capitalize their investment in upgrades or tools that will provide additional functionality to an exiting Web site. Web site costs that will be expensed include costs associated with hosting the site and such ongoing activities as administration, training and maintenance.
Of course, I am not an accountant. So, this recap of the EITF issues isn’t intended to serve as accounting guidance or to address all of the accounting procedures for companies engaging in new media business. However, I hope it does prompt you to touch base with your CFOs and accountants to confirm that accounting for your company’s new media initiatives is in keeping with these new media accounting methods.
You can get the EITC documents at FASB’s Web site, www.fasb.org
Mary Collins in the president of the Broadcast Cable Financial Management Association, a professional society for financial, MIS and HR executives in the electronic media. Her column appears here every other Friday. She can be contacted at [email protected] or 847-716-7000.