Regulators want disclosures for revenue standard to explain accounting judgments

SEC officials have spent much of the past year stressing their interest in seeing public companies provide detailed footnote disclosures in their regulatory filings about the adoption of the FASB’s new revenue standard.

Now regulators are providing some details of their own about the types of issues they want to see stressed in the disclosures related to implementing Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606). The standard eliminates much of the detailed, industry-specific guidance for revenue accounting that had been in U.S. GAAP for years and replaces it with a more principles-based standard that allows for much more judgment in recognizing revenue.

Wesley Bricker, the SEC’s interim chief accountant, told the Practising Law Institute’s Annual Institute on Securities Regulation in New York on Nov. 2, 2016, that regulators want companies to explain their accounting decisions in the disclosures.

“The new disclosures are a real important aspect of the application discussion,” Bricker said. “There’s significant content, certainly from the regulatory perspective.”

On several occasions, SEC staffers have pointed to Staff Accounting Bulletin (SAB) No. 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, (SAB Topic 11.M), and its requirement that companies to disclose in their footnotes their expectations for how new accounting standards will affect their financial results.

Bricker said he expected that some companies may need to explain how the new standard will affect the timing of their recognition.

For in-depth analysis of the FASB’s revenue recognition standard, please see Catalyst: U.S. GAAP — Revenue Recognition, also on Checkpoint.

Additional analysis of the standard can be found on Checkpoint in Accounting and Auditing Update Service [AAUS No. 2014-18] and the SEC Accounting and Reporting Update Service [SARU No. 2014-21] (June 2014): Special Report: Comprehensive Coverage of the New U.S. GAAP Revenue Recognition Requirements.

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