ASC 606-10-25-1 lists specific criteria that must all be met before an entity accounts for an arrangement as a contract with a customer under the five-step model. Which of the following is NOT one of those criteria?
- The contract has been reduced to a single, fully executed written document signed by both parties
- The parties to the contract have approved it and are committed to perform their respective obligations
- The entity can identify the payment terms for the goods or services to be transferred
- It is probable that the entity will collect substantially all of the consideration to which it will be entitled
Correct answer: A. The contract has been reduced to a single, fully executed written document signed by both parties
ASC 606-10-25-1 requires that the parties have approved the contract and are committed to perform, that each party's rights to the goods or services can be identified, that payment terms can be identified, that the contract has commercial substance, and that collection of substantially all the consideration is probable — but nowhere does it require a single fully executed written document, because paragraph 606-10-25-2 explicitly allows contracts that are written, oral, or implied by an entity's customary business practices. The approval-and-commitment criterion, the identifiable-payment-terms criterion, and the collectibility criterion are each directly drawn from the standard's actual list, so each of those three options is a genuine requirement and cannot be the answer. Because a formal signed writing is not required for a valid contract under the standard, insisting on one is the criterion that does not belong on the list.
Source: FASB Accounting Standards Codification: ASC 606-10-25-1 and 606-10-25-2, Revenue from Contracts with Customers — Identifying the Contract