A newly released staff accounting bulletin from the Securities and Exchange Commission (SEC) changes prior guidance so that it conforms with the Financial Accounting Standards Board’s Topic 606, Revenue from Contracts with Customers.
The new guidance takes effect immediately (as of Aug. 29).
A cautionary note: Staff bulletins aren’t rules of the SEC nor do they have its official approval. They represent practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of federal securities laws.
Prior to adoption of the FASB’s Topic 606, professionals should continue to refer to prior commission guidance on revenue recognition.
Here are the key changes made:
Topic 13: Revenue Recognition
Once a registrant adopts Topic 606, Topic 13 is no longer applicable. Topic 13 had provided staff views about former general revenue recognition guidance as per Topic 605.
Topic 606, however, provides a single group of revenue recognition principles that govern all contracts with customers. It supersedes existing guidance in Topic 605.
Topic 606 also provides specific guidance for bill-and-hold arrangements (i.e. revenue when delivery hasn’t happened). That means that once Topic 606 is adopted, professionals should not consider guidance in the SEC’s Release No. 23507 and Accounting and Auditing Enforcement Release No. 108 for how to recognize bill-and-hold revenue.
Topic 8: Retail Companies
Topic 8 no longer applies once Topic 606 is adopted. Topic 8 had provided staff guidance on the prohibition of presenting sales of a leased or licensed department within a retailer’s statement of comprehensive income consistent with the principles codified within Subtopic 605-45; and the disclosure of finance charges imposed by retailers on credit sales.
Topic 606 provides guidance regarding the identification of performance obligations in a contract with a customer, presentation of revenue as a principal (on a gross basis) or as an agent (on a net basis) as well as presentation of the effects of financing in the statement of comprehensive income.
Topic 11: Miscellaneous Disclosure
Topic 11.A is modified to clarify that revenues from operating-differential subsidies presented under a revenue caption should be presented separately from revenue from contracts with customers accounted for under Topic 606.
Previously, Topic 11.A provided the staff’s view that revenues from operating-differential subsidies be presented as a separate line item in the income statement either under a revenue caption or as credit in the costs and expenses section.