|IHS MARKIT LTD. filed this Form 10-K on 01/18/2019|
Adoption of ASU 2014-09 and related amendments
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In March, April, and May 2016, the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, respectively, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. We will adopt the new revenue guidance on December 1, 2018, using the modified retrospective transition method, which results in a cumulative effect adjustment to the opening balance of retained earnings as of the date of adoption, and application of the provisions of the guidance prospectively. We currently estimate an increase of approximately $50 million to the opening balance of retained earnings for this transition for the change in revenue recognition, primarily related to the change in accounting for the license rights associated with term-based software license arrangements, which were historically recognized over the term of the contract, but will now be recognized at contract inception based on estimated stand-alone selling price. Additionally, the new guidance specifies that all incremental costs of obtaining a contract and the direct costs of fulfilling a contract with customers should be deferred and recognized over the contract period or expected customer life; we are still assessing the impact of this guidance on our consolidated financial statements.
In addition to disclosures about the transition adjustment, we will also be required to provide enhanced disclosures in 2019, including revenue recognition policies, revenue disaggregation, and contract asset and liability accounts. We are currently finalizing the transition adjustment, as well as the quantitative and qualitative information necessary to provide the incremental disclosures required in our first quarter 2019 consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.
Deferred Subscription Costs
Deferred subscription costs represent royalties and certain dealer commissions associated with customer subscriptions. These costs are deferred and amortized to expense over the period of the subscriptions.
Property and Equipment
Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:
Leasehold improvements are depreciated over the shorter of their estimated useful life or the life of the lease. Maintenance, repairs, and renewals of a minor nature are expensed as incurred. Betterments and major renewals which extend the useful lives of buildings, improvements, and equipment are capitalized. We also capitalize certain software development costs in accordance with ASC 350-40, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use” and ASC 985-20, “Software to be Sold, Leased or Otherwise Marketed.”
We review the carrying amounts of long-lived assets such as property and equipment whenever current events or circumstances indicate their value may be impaired. A long-lived asset with a finite life is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it. Any impairment is measured by the amount that the carrying value of such assets exceeds their fair value, primarily based on estimated discounted cash flows. Considerable management judgment is necessary to estimate the fair value of assets. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value, less cost to sell.