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SEC Working on Revenue Recognition Guidance

Tammy Whitehouse | August 25, 2014

The Securities and Exchange Commission isn’t showing its cards just yet, but it is working on guidance related to a new standard on revenue recognition to address burning questions over whether companies will be required to recast five years worth of revenue data under the new standard.

In a meeting earlier this summer with the SEC Regulations Committee of the Center for Audit Quality, SEC staff members indicated they are “close to finalizing guidance” on whether the staff will provide relief on the disclosure requirements for the five-year selected financial data table if companies choose to adopt the standard retrospectively. The SEC indicated it is taking a complete look at areas outside of financial statements that might be affected by the new standard.

The Financial Accounting Standards Board adopting a comprehensive new accounting standard that requires a completely new method for determining revenue figures that are reported in financial statements. Public companies are required to begin recognizing revenue under the new standard from the beginning of the 2017 calendar year. That raises questions about just how far back companies would be expected to look under the new standard in presenting the five-year table, says Brad Davidson, a partner at Crowe Horwath and a member of the committee. “Those early years will have revenue recognized on a different basis of accounting,” he says. “So the question is how to apply the new standard to the five-year table. Will the SEC provide some relief on that five-year table?”

In discussions with the Regulations Committee, staff members have indicated they also are looking at disclosures required under Staff Accounting Bulletin 74, which requires disclosure of the expected effects of new accounting standards, and disclosure in management discussion and analysis if a company uses the modified retrospective transition method permitted under the new accounting standard. “The staff indicated that it will consider each of these areas and evaluate reasonable alternatives for providing disclosure,” the CAQ says in its meeting highlights. “The staff noted that it would also consider whether to provide guidance about these and other affected disclosures.” 

SEC staff also indicated to the Regulations Committee that work is continuing on the disclosure initiative project, looking for ways to make required disclosures more effective. Staff members are looking at requirements under Regulation S-K and S-X, as well as Form 8-K, and whether there is overlap between GAAP requirements in the footnotes and SEC requirements. Staff members emphasized they’re hoping companies are being proactive on the issues as well, eliminating redundancies where they can and ensuring MD&A focuses on material matters. 

“The staff clarified that improving disclosure does not need to begin with a ‘blank page,’” the CAQ wrote in its summary of the discussion. “The staff appreciates the difficulty and timing involved and recognizes that an iterative process may be more feasible. The staff also clarified that any thoughtful attempts to improve disclosure would not trigger a review or result in any additional comments.”