Alcoa 2015 Annual Report Download - page 129

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes
created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize
revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This
framework is expected to result in less complex guidance in application while providing a consistent and comparable
methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply
the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the
contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the
contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the
FASB deferred the effective date by one year, making these changes effective for Alcoa on January 1, 2018.
Management is currently evaluating the potential impact of these changes on the Consolidated Financial Statements.
In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a
going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for
preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s
liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to
continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note
disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events
in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a
going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an
indication that it is probable that an entity will be unable to meet its obligations as they become due within one year
after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the
following disclosures should be made in the financial statements: (i) principal conditions or events that raised the
substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the
entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if
substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events
that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt
about the entity’s ability to continue as a going concern. These changes become effective for Alcoa for the 2016 annual
period. Management has determined that the adoption of these changes will not have an impact on the Consolidated
Financial Statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each
annual period and interim period therein to determine what, if any, impact there will be on the Consolidated Financial
Statements in a given reporting period.
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