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Page | 48 TRANSITION METHODS The presentation of the change to the new standards will be guided by ASC 250, Accounting Changes and Error Corrections, with some modifi cations. There are two approaches: 1. Apply the new standard retrospectively with a cumulative catch-up adjustment to retained earnings as of the date of the initial application (January 1, 2019). The comparative 2018 fi nancial statements would not be restated (Transition Method – Modifi ed Retrospective). 2. Apply the new standard retrospectively to each fi nancial statement reporting period presented subject to certain practical expedients. When presenting calendar year 2019 and 2018 in comparative fi nancial statements, 2018 would need to be restated using the new standards (Transition Method – Full Retrospective). MODIFIED RETROSPECTIVE ASC 606-10-65-1(d)(2) Section (d)(2) is the section that provides the adoption requirements for the modifi ed retrospective transition method. When an entity elects to apply the modifi ed retrospective transition method the entity will need to recognize the cumulative eff ect of initially applying the standard as an adjustment to the opening balance of retained earnings (or other applicable equity account) for the annual reporting period that includes the date of initial application (January 1, 2019). The adjustment will be to recognize the diff erence between the revenue recognized for each contract under legacy GAAP and the contract revenue under this new standard since contract inception. The adjustment will also include any adjustments relating to unamortized costs to obtain contracts, capitalized fulfi llment costs, fi nancing, etc. The entity can elect to apply this standard retrospectively to all contracts at the date of initial application or only to contracts that have not been completed at the date of initial application (for example, January 1, 2019, for an entity with a December 31 year end). Most private entities adopting the modifi ed retrospective method will likely make the election to apply the new standard only to contracts that have not been completed at the date of initial application (January 1, 2019). They must disclose whether they are applying the new standard to all contracts or only to contracts that have not been completed at the date of initial application. If an entity elects to apply the modifi ed retrospective method, the entity must disclose for the reporting period that includes the year of adoption, the nature of and the reason for the change in the accounting principle and provide disclosures for the following: 1. A breakdown of the amount of change by fi nancial statement line item between what is recognized under the new revenue recognition standard and the amount that would have been reported under legacy GAAP for 2019. Since 2018 is presented under legacy GAAP there should be no restatement of amounts for that year. 2. An explanation of the reasons for signifi cant changes identifi ed in (1) above. The codifi cation allows a practical expedient for the modifi ed retrospective transition method that an entity can elect as specifi ed below: 1. For contracts that have been modifi ed prior to the start of the earliest reporting period being presented in accordance with ASC Transition Method (continued) >

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