Revenue recognition comment letters standard reveal issues. Comment letters show sec forced restatement on asc 606. Under the current revenue recognition model, collectibility is a recognition issue where no revenue is recognized if collectibility is not reasonably assured asc section 60510s99 or not probable ias 18. In the first part of this business software perspective, accountingweb catches up with oracle, netsuite and financialforce to find out what capabilities software can bring to the table. Few topics are as rabidly discussed by accountants and investors alike as revenue recognition is, yet the conversation surrounding that subject is often clou. Comment letters are an effective mechanism to advocate for the profession and influence the adoption of sound policy and regulations in the areas of accounting, tax and finance. Sec comment letters issued and closed as of march 31, 2018. We are frequently asked to provide our perspective on the topics the sec staff focuses on in its comment letters to registrants. The sec only publishes comment letters that have been fully addressed and closed. Sec says companies should brace for comment letters on new.
They found 4,785 comment letters on revenue recognition during the study period. Sec comment letter considerations, including industry. Comment letter fasbs proposed consolidation reorganization provides ey views on the fasbs objective of making the consolidation guidance easier. It will be equally interesting to see whether this newly released correspondence marks the end of a honeymoon period, portending a wave of comment letters from the sec testing issuers compliance with revenue recognition. The goal was to simplify and harmonize revenue recognition practices for public and private companies globally.
Identifying performance obligations is the second step in the new fivestep revenue recognition. Readiness discussion sec comment letters, sab 74 disclosures. They are elemental to the societys advocacy efforts and also serve to promote recognition and visibility by positioning the society as a prominent and respected leader. Comment letters show sec forced restatement on asc 606 blog.
Although this sounds odd, there is a relationship between the contract and the accounting group centered on revenue recognition for software companies. The staff provided the board with a preliminary analysis of 986 respondents comment letters as well as feedback received from outreach activities conducted on the exposure draft revenue recognition. Amazon pushes back on sec revenue disclosure comment. Sec comments on early reports under the new revenue recognition. The sec has asked companies to explain the methods that they used to determine revenue and apply the standard, said rob peters, senior director for intelligize. For performance obligations satisfied over time, include the input or output method used to recognize revenue. Sep 10, 2014 they found 4,785 comment letters on revenue recognition during the study period. In the first part of this business software perspective, accountingweb catches up with oracle, netsuite and financialforce to find out what capabilities software. This publication highlights the areas of the revenue standard addressed in the sec staffs comments. A total of 38 companies have been issued comment letters, 8 of which are early adopters of the new revenue standard. The sec posted squares comment letters on its revenue. Lessons learned from sec comment letters on the new revenue.
The predictable nature of saas revenue recognition, and the ease with which customers can adopt saas, will continue to drive success for these tech companies and result in a premium on valuation. No audit finding audit recommendation management comments in prior year current status. Clarity, comparability still to come under new revenue rules. The securities and exchange commission has been taking a close look at how has been adhering to the new revenue recognition standard, particularly with regard to its amazon prime revenue, and amazon has been pushing back in response to the secs comment letters. Featuring builtin dual guidance and realtime reporting, the sap revenue recognition solution can help you quickly mitigate risk, minimize manual input, and meet the latest standards in revenue. The uptick in revenue recognition comments was also expected, as many of the revenue comments requested clarification regarding the adoption of asc 606, which became effective on january 1, 2018 for companies with a calendar year end. Asc 606 revenue from contracts with customers for software and cloud computing. Not surprisingly, computer software companies had the greatest tendency to draw scrutiny from the sec. Form 10q for the quarterly period ended may 4, 2018. This weeks blog will chronologically outline these communications with our thoughts on the value of. Collectibility refers to the customers credit risk and the ability to pay the entity the amount of promised consideration. On june 3, 2014, the fasb and the iasb announced the formation of the joint transition resource group for revenue recognition trg.
A look at top sec comment letter issues in 2018 audit. The sec posted squares comment letters on its revenue recognition and revenue nongaap metrics the regulator posted the letters on dec. Sec may be set to crack down on companies that adjust revenue. In software companies, a third group should be thought of when the word contract is spoken. Revenue recognition rose to the top spot as the most frequent area of comment, as most. However, previous revenue recognition guidance differs in generally accepted accounting principles gaap and international financial reporting standards ifrsand. Insiders dump stock in advance of sec comment letters. New revenue recognition standard means big changes for. The intelligize analysis also scrutinized sec comment letters on early adopters, finding that measurement of performance obligations generated 69. Accounting standards update, intangibles, goodwill and other internaluse software subtopic 35040. Intelligize report on new revenue recognition standard. Fei identified 21 companies that received comment letters from the sec related to the new revenue standard.
How revenue recognition is changing in 2018 accountingweb. Revenue recognition software accounting automation sap. Jul 25, 2017 software companies continue to analyze the impact of the new revenue standard on their contracts, accounting policies, and financial statements. Sec comment letter trends for technology, media and.
Nov 26, 2018 at least 100 companies received comment letters from the regulator through the first half of 2018, with more missives landing since then. Jul 10, 2019 while the pharmaceutical industry led the way overall with 49 revenue recognition related comment letters, followed closely by 43 for the prepackaged software sic code, the highest number of topic. As of march 31, 2018, 38 companies had received comment letters. Revenue recognition tilts toward modified transition. Those comment letters contain 42 comments pertaining to either the adoption or implementation of the standard. Comment letters are posted to the gasb website shortly after they are received and may be accessed both through the individual project page or through the comment letters menu item under the projects tab. The sec released the comment letter conversation in december, indicating an exchange of 15 letters over 194 days. Prepare before the 2019 revenue recognition wreckage.
Since then, however, none received a comment letter from. The comment letters related to judgment issues on the timing of satisfaction of performance obligations and obligations satisfied at a point in time rather than over time. Companies who miss the required adoption and disclosure dates may receive comment letters. The software entities revenue recognition task force has been created to address issues which may arise due to fasbs new revenue recognition standard. Revenue recognition financial reporting developments on software revenue recognition.
Dec 11, 2017 in this podcast, we provide an introduction to the new revenue recognition standard. Dec 20, 20 revenue recognition software that remakes the revenue recognition world into something better would contain the following three characteristics. Sec comment letter observations on the new revenue. Comment letter language includes topic 606, asc 606 or asu 201409. In addition to extracts of letters and links to relevant related resources, it contains analysis.
Business combinations business combinations sec reporting considerations carveout transactions comparing ifrs standards and u. Revenue from contracts with customers or its ifrs equivalent, ifrs 15. The financial accounting standards boards fasb accounting standard on revenue recognition, fasb asu 201409, eliminates the transaction and industryspecific guidance. After a 15part comment letter exchange with the securities and exchange commission over its compliance with new revenue recognition rules, kingsway financial services opted to restate. Read our sec comment letter observations on the new revenue standard. Gaap consolidation identifying a controlling financial interest. Learning objective to provide you with a thorough understanding of the latest accounting rules for revenue recognition and to. However, nonpublic companies may elect only to disclose revenue recognized during the reporting period disaggregated based on when control of goods or services transfers to the customer a point in time or over time. The number of relevant sec comment letters was determined via searches within mylogicid companyiq, looking specifically for sec comments. Gaap consolidation identifying a controlling financial interest contingencies and loss recoveries. Accelerated recognition of revenue from the sale of goods in certain circumstances e. Asc 606 revenue from contracts with customers for software and. Simplify complex accounting processes with highlyconfigurable revenue recognition and accounting automation software.
As companies finalize their revenue recognition policies and begin to draft their disclosures in preparation for the effective date, there is the opportunity to learn from the comment letters received. Public energy companies are now one year in on their implementation of asc 606, revenue from contracts with customers, the revenue. Ford and alphabet have received sec comments on their initial disclosures under fasbs new revenue recognition standard. Customers accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Lastly, tell us the amount of revenue recognized from these variable fees for. Asc 606 webinar series sec comment letters and companies. Here you will find the issues identified and further discussion. Apr 18, 2011 the term comment letters may refer either to the letters that individuals and entities submit in response to requests for public comment on sec rule proposals or concept releases, or to correspondence between sec staff and sec filers. This population of relevant sec comment letters was determined and the filings were retrieved via searches within companyiq. The updated standard uses a different process to allocate the contract value and related discounts with the contract by eliminating the need to establish vendorspecific objective evidence vsoe, which may produce more aggressive revenue recognition. New revenue recognition standardpart i, introduction. Comment letters april 18, 2011 the term comment letters may refer either to the letters that individuals and entities submit in response to requests for public comment on sec rule proposals. Revenue is one of the most important measures used by investors in assessing a companys performance and prospects. In general, the sec staffs comments have focused on areas requiring judgment, including timing of revenue recognition, the number of performance obligations, estimates of variable fees, and principal versus agent assessments gross versus net reporting of revenue.
Sec commentary to company filings on asc topic 606. In an alert on the restatement, audit analytics says thats four times longer than the average comment letter exchange with the sec. Regulations new revenue recognition standard means big changes for software companies. For over 17 years, softrax has pioneered the market with revenue recognition. This weeks blog focuses on sec filings, sec comment letters, and sec comment letter responses for amazon. Softrax revenue recognition automation software for enterprise level companies. Disclosures for implementation costs incurred for internaluse software and cloud computing arrangements file reference no. Identifying performance obligations is the second step in the new fivestep revenue recognition process. The securities and exchange commission may be closer to cracking down on companies that adjust their revenue, according to a marketwatch analysis of comment letters sent by the. For your convenience, each response below corresponds to the italicized comment that immediately precedes it, each of which has been reproduced from the letter in the order presented and as numbered in the letter. Heads up the new revenue standard a look at sec feedback. For more traditional term licences vendors, revenue may now be recognised upfront on delivery of the software.
The trg informs the iasb and the fasb about potential. Roughly a third of the early adopters received comment letters on revenue recognition during the time period from the first study. Weekly revenue recognition asc 606 roundup softrax. In its comment letter to amazon, the sec also asks the company to better explain how it determines whether it is acting as the principal or an agent in its sale of digital media content. Comment letters are received from constituents in response to discussion papers, exposure drafts, and other discussion documents that are released to the public for comment. Revenue recognition for software companies requires. Sec comment letter publication dart deloitte accounting. Sec takes a hard look at revenue recognition disclosures. The 2017 edition of sec comment letters including industry insights offers such perspective.
Efrag thinks that a resulting standard on revenue recognition should clarify that revenue should be limited to the amount to which an entity is reasonably assured to be entitled. Ford and alphabet receive sec comments on new revenue recognition standard. If you receive a comment letter from the sec staff, view it as an opportunity to educate. A total of 31 companies have been issued comment letters, 4 of which are early adopters of the new revenue standard. Comment letter language includes topic606,asc606or asu201409. Revenue recognition initial comment letter analysis. Picpa committees and the professional and technical standards team work hard to ensure regulatory bodies understand how their decisions affect the accounting profession. Sec comments drove changes in revenue reporting, analysis says. Gaap compliant since the main aim of revenue recognition software is to create gaap compliant financial statements, this needs to be considered a primary component of the best revenue recognition.
This publication reflects implementation developments since issuance of the standards and highlights considerations relevant in evaluating the impact of the new standard to revenue arrangements common. Mar 22, 2016 regulations new revenue recognition standard means big changes for software companies. In this webinar, we revisit these letters paired with companies. In addition to extracts of letters and links to relevant related resources, it contains analysis of staff comments. In may 2014, the financial accounting standards board fasb issued accounting standards update no. Amazon pushes back on sec revenue disclosure comment blog. One major part of interaction is in the form of comment letters.
Over the past few months a highly instructive and informative interplay of communications occurred between amazon and the sec specific to asc 606. Other features include 1 an update on the secs priorities. Please tell us why the standalone selling price of software is typically. Contract modifications, repurchase agreements, disclosure, sec comment letters, significant differences with ifrs, asu 201818, software automation asc 606. Sec says companies should brace for comment letters on new revenue rule. As companies finalize their revenue recognition policies and begin to draft their disclosures in preparation for the effective date, there is the opportunity to learn from the comment letters received by early adopters. Not surprisingly, computer software companies had the greatest tendency to draw scrutiny from the sec in this area. The changes in standards will impact all companies, and even if the extent of change for a particular industry or company is slight, the disclosures necessary to explain the changes and when implemented, to describe revenue streams may not be. Comment letters governmental accounting standards board. Revenue recognition tilts toward modified transition approach.
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