Technical Accounting

Run the five steps against the actual contracts, not the sales deck. For performance obligations, promises are distinct when the customer can benefit from them separately and they are separately identifiable in context; bundles that are inputs to one combined output (a system plus essential integration) collapse into a single obligation with one pattern of recognition. For principal versus agent, the question is control of the specified good or service before transfer: inventory risk, discretion in pricing, and primary responsibility are indicators, not a checklist, and the conclusion is per specified good or service, so one arrangement can be gross for one component and net for another. Marketplace, advertising, and platform businesses live on this analysis: the difference between presenting gross media spend and a net take rate is the difference between two entirely different income statements. Then document standalone selling prices, variable consideration constraints, and modification accounting, and keep the memos current as contract terms evolve.

What we do: We analyze the actual contracts, conclude on obligations and gross versus net, and deliver the revenue memo and policy your auditors test.

Start with completeness: screen service, logistics, power, and manufacturing agreements for embedded leases, an identified asset the supplier cannot substitute plus customer control of its use, because the missed population is a bigger audit risk than the measurement of known leases. Classify at commencement (finance versus operating drives expense pattern, not balance sheet), and support the incremental borrowing rate with a real methodology: collateralized rate, lease term, currency, and entity credit, refreshed as rates move. Then run the events: modifications either create a separate contract or trigger remeasurement with an updated rate; term-option reassessments, impairments of right-of-use assets, and sublease accounting each have defined mechanics. A lease accounting policy plus a completeness control plus a modification log is the package that makes this area quiet at audit.

What we do: We run the embedded-lease screen, support the borrowing rate, and keep the modification log so lease accounting stays quiet at audit.

Run the screen test first: if substantially all the fair value sits in a single asset or similar-asset group, it is an asset acquisition with no goodwill and different contingent payment accounting. For true business combinations, allocate at fair value with valuation support for customer relationships, technology, and trade names, recognize deferred taxes on the basis differences, and note ASU 2021-08’s change: acquired contract assets and deferred revenue now come over at ASC 606 carrying basis rather than haircut fair value, which ended a generation of post-deal revenue dips. Earnouts to sellers are contingent consideration at fair value, remeasured through earnings, unless tied to continuing employment, in which case they are compensation. The measurement period caps at one year and only reaches back to facts existing at close; everything after is an error correction. Transaction costs expense as incurred. We write the allocation memo and coordinate the valuation so the first post-deal audit tests a documented position.

What we do: We write the allocation memo, coordinate the valuation, and map the deferred taxes into one opening balance sheet package.

Sort every award’s vesting terms into the three categories, because the accounting diverges completely: service conditions expense ratably; performance conditions (milestones, exits, approvals) expense only when the outcome is probable, which for IPO- or sale-contingent vesting typically means a concentrated charge when the event occurs; market conditions (share price hurdles) are built into grant-date fair value via simulation and expensed regardless of achievement. Modifications, repricings, extended exercise windows, accelerations, are accounted for as an exchange: incremental fair value is additional expense, and Type III improbable-to-probable modifications remeasure entirely. For private companies, maintain contemporaneous 409A support and expect the cheap stock comparison against any subsequent financing or offering price. The award-by-award inventory with the condition classification is the workpaper that keeps this area clean.

What we do: We build the award-by-award inventory with condition classification, account for modifications, and maintain the cheap stock bridge.

Run the waterfall in order and document each step: ASC 480 first (mandatorily redeemable instruments, obligations to issue a variable number of shares worth a fixed amount), then ASC 815-40 indexation (is the instrument indexed only to the entity’s own stock) and the equity classification conditions (share settlement within authorized limits, no cash-out events outside the entity’s control). In practice: most SAFEs fail equity classification and sit as fair-value liabilities; convertible notes after ASU 2020-06 mostly remain single liabilities with fewer bifurcations but a diluted EPS if-converted cost; warrants divide on their settlement terms, with holder-dependent provisions forcing liability treatment; redeemable preferred in private companies typically lands in temporary equity under the SEC’s framework once redemption is outside the company’s control. Every conclusion carries an EPS consequence, so the memo covers 480, 815, and 260 together. Write it at issuance; reconstructing intent two years later convinces nobody.

What we do: We classify each instrument at issuance in one memo covering ASC 480, 815, and the EPS consequences together.

Every memo we issue carries the same spine: the facts, stated from the actual contracts with the relevant terms quoted, not summarized from memory; the question, framed as the accounting alternatives genuinely available; the guidance, cited to the Codification paragraphs that govern, including the ones that cut against the conclusion; the analysis, applying each criterion to the facts and addressing the counterarguments a reviewer would raise; the conclusion, with the journal entries, financial statement presentation, and disclosure it produces; and the sensitivity, what fact changes would flip the answer, which is what makes the memo durable as the business evolves. Attach the contracts. A memo built this way is testable evidence; anything less is a narrative the auditors must rebuild themselves, at your expense.

What we do: Every position we deliver follows this structure, with the contracts attached, so it stands as testable audit evidence.