How Standalone Selling Price (SSP) Representation Types Behave During Contract Modifications

A Deep Dive into Allocation Mechanics Under ASC 606 and IFRS 15

Executive Summary

Contract modifications are among the most complex and auditor-sensitive areas of ASC 606 and IFRS 15. While much attention is typically given to classification of modifications (separate contract, prospective, or retrospective), significantly less focus is placed on how SSP representation types behave once a modification occurs.

This whitepaper builds on foundational knowledge of SSP, Extended SSP, and Relative SSP, and explores how SSP representation choices (for example, Unit Price, Percentage of Base Price, Discount from List, Gross Margin) influence:

• Recalculation of Extended SSP during modifications
• Reallocation of transaction price
• Catch-up versus prospective accounting outcomes
• Contract asset and contract liability balances
• Audit defensibility of allocation results

The paper explains why different SSP representations can lead to different allocation results during modifications—and why this is acceptable under accounting standards—provided economic intent is preserved.

1. Why Contract Modifications Stress SSP Representation Logic

Contract modifications introduce change, and change forces reassessment:

• New goods or services
• Changes in quantity, price, or scope
• Changes in timing or performance obligations
• Repricing or discount restructuring

ASC 606 / IFRS 15 require entities to ask:

1. Is the modification a separate contract?
2. If not, should accounting be prospective or retrospective?
3. How should the remaining transaction price be allocated?

SSP representation types directly affect how Extended SSP is recalculated, which in turn drives Relative SSP percentages, and ultimately revenue allocation and balance sheet positions.

2. Refresher: SSP, Extended SSP, and Representation Types

SSP (Standalone Selling Price)

The price at which an entity would sell a promised good or service separately.

Extended SSP

Extended SSP converts SSP into a line-level economic value:

Extended SSP = SSP Representation Formula × Quantity × Duration (if applicable)

SSP Representation Types (Conceptual, System-Independent)

These representations do not change the promise, but they change how the promise is measured.

3. Contract Modification Models Under ASC 606 / IFRS 15

Before analyzing SSP behavior, recall the three modification models:

3.1 Separate Contract

• Additional goods/services are distinct
• Price reflects SSP at modification date

3.2 Termination of Old + New Contract (Prospective)

• Remaining goods/services are distinct
• Allocation applies only to remaining performance obligations

3.3 Cumulative Catch-Up (Retrospective)

• Remaining goods/services are not distinct
• Requires recalculation of allocation from inception

SSP representation behavior differs materially across these models.

4. How SSP Representation Types Behave in a Separate Contract

Key Principle

SSP representation for the original contract is locked.
The modification uses current SSP representation and values.

Example

Original contract:

• Software license SSP = $100,000 (Unit Price)
• Implementation SSP = $50,000

Modification:

• Adds training services priced at SSP of $20,000

Behavior:

• Training SSP representation is evaluated independently
• No reallocation of original transaction price
• No recalculation of Extended SSP for existing POBs

Why representation stability matters
Using different SSP representations for the new POB does not contaminate prior accounting.

5. SSP Representation Behavior in Prospective Modifications

Scenario

• Remaining goods/services are distinct
• Modification treated as termination of old + new contract

What Happens

1. Previously recognized revenue is not reversed
2. Remaining transaction price is reallocated
3. Extended SSP is recalculated only for remaining POBs

Representation Impact

Because Extended SSP is recomputed, representation choice matters:

• Unit Price representation → linear recalculation
• Percentage-based representation → sensitive to base price changes
• Discount-based representation → sensitive to pricing restructures

Example

Remaining obligations:

• SaaS subscription
• Support services

If SSP representation is:

• Unit Price → Stable allocation
• Discount from List → Allocation shifts if discount policy changes at modification

Both outcomes are acceptable if SSP reflects current standalone economics.

6. SSP Representation Behavior in Retrospective (Catch-Up) Modifications

This is where representation choice has the largest accounting impact.

Required Actions

• Reverse previously recognized revenue
• Recompute Extended SSP from inception
• Reallocate transaction price across all satisfied and unsatisfied obligations

Why Representation Matters More Here

Extended SSP is recalculated using:

• Revised quantities
• Revised durations
• Revised base prices
• Revised cost structures (for margin-based SSP)

Example (Simplified)

Original SSP representation:

• Implementation: Gross Margin-based SSP
• SaaS: Unit Price SSP

Modification:

• Reduces implementation scope
• Extends SaaS term

Result:

• Gross Margin SSP recalculates differently than Unit Price SSP
• Relative SSP shifts
• Revenue catch-up entry changes materially

This does not violate ASC 606, because:

• SSP is a measurement estimate
• Standards allow updated estimates when facts change

7. Why Different Representation Types Can Legitimately Change Allocation

This is a critical conceptual point.

Standards Do NOT Require:

• A single “correct” SSP representation
• Static allocation outcomes across contract life

Standards DO Require:

• SSP reflects standalone economics
• Allocation reflects relative value
• Changes are applied consistently and documented

Different representations emphasize different economic anchors:

• Unit Price → market pricing
• Percentage of Base → bundled strategy
• Discount → concession management
• Margin → cost recovery economics

As long as the representation:

• Is applied consistently
• Is supported by evidence
• Reflects standalone selling behavior

…then different allocation outcomes are acceptable, even if contract asset and liability balances change.

8. Impact on Contract Assets and Contract Liabilities

Because allocation changes:

• Revenue timing changes
• Contract asset balances shift
• Contract liability balances shift

This is expected behavior, not an error.

Key Accounting Insight

Contract assets and liabilities are outputs of allocation, not drivers of it.

Changing SSP representation during a valid modification:

• Does not “manipulate” accounting
• Reflects updated economics of remaining obligations

9. Auditor Expectations and Common Challenges

Auditors typically challenge:

• Inconsistent SSP representation usage
• Changes in representation without policy justification
• Retroactive changes without modification triggers
• Margin-based SSP lacking cost support

Best practice:

• Lock SSP representation by POB type
• Allow value refresh, not representation drift
• Document why representation reflects standalone selling behavior

10. Practical Governance Model

Strong revenue organizations:

• Define SSP representation at product / POB level
• Separate representation from value
• Allow recalculation only when standards permit
• Treat modifications as economic reassessments, not system recalculations

Conclusion

SSP representation types are not merely configuration choices—they are economic measurement lenses. During contract modifications, these lenses determine how Extended SSP is recalculated and how transaction price is reallocated.

Key takeaways:

• Representation choice matters most in prospective and retrospective modifications
• Different allocation outcomes are acceptable if economics are faithfully represented
• Contract asset and liability volatility is a consequence, not a failure
• Governance and documentation—not uniformity—drive compliance

Understanding how SSP representation behaves during contract modifications is essential for accurate revenue recognition, audit defensibility, and scalable revenue operations under ASC 606 and IFRS 15.