Does the warranty offer the customer a service in addition to the assurance that the product complies with agreed-upon specification?

If the entity offers a warranty then it needs to be analyzed to determine if it is providing the customer with a benefit that is greater than the assurance that the good or service will comply with agreed-upon specifications. An analysis needs to be performed on warranties written into the terms of the agreement, but consideration also needs to be given to warranties that maybe implied by an entity’s customary reporting practices.

There are a number of factors to consider when determining if a warranty provides a service beyond assurance of compliance. For example, if the warranty is required by law then it would not be represent a service in addition to assurance of compliance. Other factors to consider include the length of the warranty period. The longer the warranty period then the greater the liklihood that it is a service beyond assurance of compliance. In addition, the tasks the entity is committing to perform may give insight into whether the warranty is a service beyond assurance of compliance. For example, if the reporting entity is agreeing to perform specified tasks to provide assurance that a product complies with its specifications then the tasks are are not likely to give rise to a service beyond assurance of compliance.

ASC 606-10-25-19 and ASC 606-10-55-33

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