Today’s Presentation is; Warranty Accounting Standards by Eric Arnum Editor
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Today’s Presentation is;Warranty Accounting Standards
by Eric ArnumEditor
RLA STANDARDS COMMITTEE WEBINAR
LEADERSHIP CHAIRPERSONRon LembkeUniversity of Nevada
CO-CHAIRPERSONKen JacobsenConnexus
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Standards Update: Warranty Accounting Standards
by Eric ArnumEditor
Warranty Week
STANDARDS COMMITTEE WEBINAR
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Warranty & Service Contract Cash Flow
– Manufacturer’s Warranty:• $24.0 billion in claims paid by manufacturers, 2012
– Service Contracts:• $34.7 billion in premiums paid by consumers, 2012
– Total Cash Flow:• $58.7 billion changes hands in 2012
STANDARDS COMMITTEE WEBINAR
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$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Other
Appliance
CE
Phone
PC
Auto
Source: Warranty Week
Manufacturer’s Warranty ExpensesClaims Paid by U.S. Manufacturers, 2003-2012
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$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
HomeWarranty
Appliance
CE
Mobile
PC
VSC
Source: Warranty Week estimates
U.S. Service Contract MarketPremiums Paid by U.S. Consumers, 2003-2013
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FASB Accounting Standards Codification• Out with the old
– For manufacturer’s warranty:• FASB Interpretation Number 45 (Fin 45) "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others -- an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34"
– For service contracts:• Technical Bulletin Number 90-1, "Accounting for
Separately Priced Extended Warranty and Product Maintenance Contract"
WEBINAR Source: Warranty Week estimates
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FASB Accounting Standards Codification
• In with the new
– For manufacturer’s warranty:
• ASC Topic 460 – Guarantees
– For service contracts:
• ASC Topic 605 - Revenue Recognition
WEBINAR Source: Warranty Week estimates
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WEBINAR Source: Warranty Week estimates
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WEBINAR Source: Warranty Week estimates
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WEBINAR Source: Warranty Week estimates
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Example of an ASC 460-10-50-8b Methodology Disclosure from the HP Annual Report:
WEBINAR Source: Warranty Week estimates
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Example of an ASC 460-10-50-8c Tabular Disclosure from the HP Annual Report:
WEBINAR Source: Warranty Week estimates
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Hewlett-Packard Co.Warranty Claims & Accruals, 2003-2013
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Quarterly Claims ($ Mil) Claims Rate (%)Accrual Rate (%)
Source: Warranty Week from SEC dataWEBINAR
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WEBINAR Source: Warranty Week estimates
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Eric Arnum, EditorWarranty Week10520 66th RoadForest Hills NY 11375-2179USA
+1 (718) 896-0367http://[email protected]
WEBINAR Source: Warranty Week estimates