Although this sounds odd, there is a relationship between the contract and the accounting. Ryans, j, dechow, p m and lawrence, a 2015 sec comment letters and insider sales. Sec says companies should brace for comment letters on new. Kellog consulting, cpas principal kellog consulting. In software companies, a third group should be thought of when the word contract is spoken. Revenue recognition for longterm constructiontype and productiontype contracts 43. Software revenue recognition a roadmap to applying aicpa. Amazon pushes back on sec revenue disclosure comment. The study, sec comment letters and insider sales, found that when comment letters raised the particularly nettlesome accounting issue of revenue recognition, top executives took. Sec comments on early reports under the new revenue recognition standard tended to sway companies to revise their. The second type of comment letters, between sec staff and sec filers, are contained in the secs edgar database. This article details comments that a senior sec official put forward during an event in may 2018 regarding what companies should expect in terms of timing and focus of upcoming asc 606. Marketwatch analyzed comment letters issued by the sec in 2018 and 2019 that had revenuerelated nongaap keywords and found companies were often being advised on how to handle.
Martin gives a brief refresher on the sec comment letter process. Sec may be set to crack down on companies that adjust revenue. Preparing and filing all sec reports revenue recognition and recast experience, including vsoe, tpe and besp determination, and. In may 2014, the financial accounting standards board fasb issued accounting standards update no. Sec comment letters lead insiders to dump shares cfo. Drafting and filing responses to sec comment letters. Revenue recognition tilts toward modified transition. Intelligize report on new revenue recognition standard. On august 3, 2017, it received a comment letter from the sec, which included comments on its form 10q and its transition to the new revenue recognition standard. Sec comments drove changes in revenue reporting, analysis says. Appendix c tips for searching the sec s database for comment letters 154.
San clara get your annual revenue recognition update here. Business combinations business combinations sec reporting considerations carveout transactions comparing ifrs standards and u. Based on comment letters that address the revenue standard. Sec comment letters and insider sales lbs research online. This letter responds to your comments communicated to us in your letter dated december 14, 2017. In this podcast, we provide an introduction to the new revenue recognition standard. Most public companies adopted the highlyanticipated new revenue recognition standard during 2018. Fei identified 21 companies that received comment letters from the sec related to the new revenue standard. Softrax revenue recognition automation software for enterprise level companies. Effects of roadmaps on revenue recognition for software. Software companies continue to analyze the impact of the new revenue standard on their contracts, accounting policies, and financial statements. Sec comment letter observations on the new revenue. Public comment letters relating to sec rulemaking and regulatory actions are found in the regulatory actions section of the sec s web site. However, previous revenue recognition guidance differs in generally.
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. Comment letters show sec forced restatement on asc 606, by tammy whitehouse our thoughts. The revenue standard not only provides new accounting guidance, but also requires a significant number of new disclosures, intended to provide greater transparency to investors about a companys revenue contracts and related accounting policies. The intelligize analysis also scrutinized sec comment letters on early adopters, finding that measurement of performance obligations generated 69. Not surprisingly, computer software companies had the greatest tendency to draw scrutiny from the sec in. For background information on what materials are released, timing, and confidential treatment, see press. The accounting literature on revenue recognition includes both broad conceptual discussions as well as certain industryspecific.
Nearly half of all comment letters mentioned disclosures, demonstrating the importance the sec places on the information companies share in their filings. The sec is looking into revenue recognition in some transactions that took place in the u. Sec sues volt information for allegedly misstated revenue. According to gaap rules on revenue recognition for software companies, producing a roadmap can be viewed as a commitment to provide the. Revenue recognition issues addressed in comment letters include 1 the. Other features include 1 an update on the secs priorities. Following up on the first intelligize whitepaper on revenue recognition, we also reexamined the progress of socalled early adopters. While the pharmaceutical industry led the way overall with 49 revenue recognitionrelated comment letters, followed closely by 43 for the prepackaged software sic code, the highest number of. The 2017 edition of sec comment letters including industry insights offers such. In addition to discussing top areas of interestincluding revenue recognition, leases, and nongaapthey also provide a few best practices when responding to sec comments. 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. The sec has issued a staff accounting bulletin to bring its existing guidance into conformity with fasbs new revenue recognition standard.
This group includes more than 30 companies that began using the revised topic 606 standard in 2017. Sec comments begin for early adopters of revenue recognition. They found 4,785 comment letters on revenue recognition during the study period. The second type of comment letters, between sec staff and sec filers, are contained in the secs edgar database see how to search for edgar correspondence. An ibm spokesperson said the company is cooperating with the agency. Contract modifications, repurchase agreements, disclosure, sec comment letters, significant differences with ifrs, asu 201818, software automation continued 2. The new revenue recognition standard made a significant impact on the way most companies recognize revenues. Comment letters show sec forced restatement on asc 606.
Lessons learned from sec comment letters on the new. The changes in standards will impact all companies, and even if the extent. Revenue is one of the most important measures used by investors in assessing a companys performance and prospects. New revenue recognition standardpart i, introduction. Abstract the accounting standards committee of the american institute of certified public accountants issued a. 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. Report on new revenue recognition standard details. Sec says companies should brace for comment letters on new revenue rule. Kpmg guides and publications relevant to fasbs new revenue standard. The securities and exchange commission is getting some pushback from amazon over staff requests for more disclosure regarding its recognition of revenue under a massive new accounting standard that. 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 accounting update asc 606 acs live.
Revenue recognition for software companies requires. Other subjects of frequent sec staff comment include revenue recognition, income taxes, loss contingencies, business combinations and intangible assets. Sec comments on early reports under the new revenue recognition standard tended to sway companies to revise their reporting, analysis shows. Insiders dump stock in advance of sec comment letters. Gaap consolidation identifying a controlling financial interest. This population of relevant sec comment letters was determined and the filings were retrieved via.
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