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EITF 08-1 Rev Rec: How do you establish the Estimated Selling Price (or ESP) for a new product?

We got this question on an EITF 08-1 / EITF 09-3 webinar this morning and I wanted to put it out to the group here: "For a brand new product, what do you use to establish ESP?" The person further asks whether the company's price list would be a good place to start.

Assuming here that they cannot establish VSOE or TPE the company must establish ESP for all separable products. To make life more difficult, there is not specific guidance on how one does this for new or established products. At least for established products you presumably have some sales history to fall back on to use as the basis for your ESP logic.

So given that there are no hard and fast rules, it would be great to hear what those already living with this issue have to say about this question. Thank you.


Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

I start with our standard ESP models first to see whether the new product will fit into the ESP model for similar, already established products. If so, and if you believe in your rationale for the related products, this works well and is fast.

If you don't have similar products, you may want to start by looking at the ESP models you have in place and seeing whether there are models that would fit easily and logically. For instance, if this is a high margin product, you might want to use your "gross margin ESP model", assuming you have one! If it is a manufactured product you might want to use your "cost plus ESP model", again assuming you have one. If you have a model that you think will fit but are not certain, reach out to your auditor. Based on your existing models and the fact that I'm SURE you checked your ESP models with your audit partner, he/she should quickly be able to give you a thumbs up or thumbs down on that assertion.

If you are really just getting going with 08-1 and need to lay out initial models across the board, my suggestion is to float out to this forum more details around what your company does and ask for feedback about what others are using for similar products and industries. Since there is no solid guidance, input from peers and your audit partner will be a wonderful place to start.


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