No Slowdown on Revenue Recognition Chatter for SEC

By Aarthi Rayapura December 29, 2015

As we wind down the year 2015, there’s clearly no ebb to the flow of revenue recognition discussion.

PricewaterhouseCoopers (PwC) recently released its third annual ‘SEC Comments Letter’ publications, tracking trends in commentary to the U.S. Securities and Exchange Commission (SEC), and the revenue recognition narrative within the technology sector probably wasn’t surprising for those in the trenches.

The report, which analyzed over 1,200 comments issues to the agency from July 1, 2014, to June 30, 2015, shows an increase in comments on revenue recognition in 2015, nearly doubling comments the prior year, in a year in which comments overall to the SEC decreased from the prior year.

With the new revenue recognition guidance on everyone’s mind, it shouldn’t come as a shock that this topic represented 12 percent of the comments received by technology companies in the report, a jump from 9 percent for the year 2014.

“One area the SEC staff was keenly focused on in 2015 was the implementation of the new revenue accounting standards,” the report states. “Whether by facilitating the identification and resolution of broad-based practice issues or encouraging companies to take a fresh look at their revenue-related internal controls, the SEC staff is working to promote a successful implementation and consistent application in the U.S. and around the world.”

The regulatory agency’s focus on the new standard was also evident in comments made by their officials at the AICPA Conference on Current SEC and PCAOB Developments earlier this month in Washington.

As reported by the Journal of Accountancy, SEC Professional Accounting Fellow Ashley Wright touched upon a key objective of the new guidance, or FASB Accounting Standards Codification Topic (ASC) 606, to enhance the standards through concepts improving accounting comparability, in stating the agency is “focused on achieving more consistent interpretation and application of the principles as part of the transition to Topic 606.”

At the conference, SEC Deputy Chief Accountant Wes Bricker, when asked how to proceed if a financial preparer learns something new about a company’s existing revenue recognition policies while implementing ASC 606, said his agency would be more interested in implications for future accounting under ASC 606.

“As we approach this transition period, we’re very much focused on 606 implementation rather than trying to narrow diversity under (Topic) 605,” he said. “We’re looking to narrow diversity as part of 606.”

Citing success some companies have had in taking a ‘bottoms-up approach’ to assess ASC 606, Wright some tips for this approach:

1) Identify each of the different revenue arrangements and contracts

2) Take a fresh look at historical accounting policies and practices

3) Identify differences as a result of applying requirements of the new standard to those arrangements

“Resolutions of differences sooner rather than later is preferable from a comparability standpoint,” Wright said.