Periodic changes from the Financial Accounting Standards Board (FASB) require public companies to adapt their financial disclosure strategies, putting a strain on already tight resources. It can be a real struggle for organizations to transition to new accounting standards, especially when the SEC expects them to provide insights into how the changes will impact the company before the standards are actually adopted. Addressing this challenge became the vision behind Intelligize’s new solution for accounting professionals – to track rule changes and determine market standard language for accounting policy disclosures.
As we have previously discussed, FASB’s Topic 606, “Revenue from Contracts with Customers,” fundamentally changes how companies across nearly every industry will recognize revenue. Starting this year, public companies (next year for private companies) of all sizes must adopt the new guidelines. The SEC initially pledged not to “beat up” on early adopters with respect to revenue recognition, but if recent comment letters are any indication, SEC examiners are still throwing a few jabs.
Of the nearly 4,000 public companies subject to SEC oversight, a small subset were early adopters of the new revenue recognition standard. Using our proprietary research platform, we looked at the SEC’s comments to 10 early adopter companies, which covered 18 topics on 10-Q and 10-K filings made between January 1, 2017 and December 31, 2017. The majority of the Commission’s comments, nearly 70 percent, were directed to the measurement of performance obligations, with the most prevalent inquiries being the timing of satisfaction of performance obligations, and obligations satisfied at a point in time.
The SEC, for example, asked global aerospace and defense company, General Dynamics, to revise its filing to disclose why recognizing revenue over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) is a faithful depiction of the transfer of goods or services pursuant to Topic 606-10-50-18(b). The SEC was also curious about the decision of Ford Motor Co. under the new revenue standard to now recognize revenue for certain vehicle sales when vehicles are shipped, where that revenue had previously been deferred. As for the technology giants, the SEC had plenty of questions for Alphabet about the recognition of advertising revenues and for Microsoft regarding revenues generated from sales of its cloud services under the new standard.
Clearly, the learning curve for companies is steep where Topic 606 is concerned, just as it is with other evolving accounting rules, including those related to lease accounting (Topic 842) and credit losses (Topic 326). Intelligize believes it has a remedy for these growing pains.
It has always been a formidable challenge for accounting professionals to manage workflows around FASB rules and SEC compliance when switching between different platforms and sources of information. But with the release of Intelligize’s new Accounting Standards & Guidance offering, this process has been streamlined to promote efficiency and speed. Accounting Standards & Guidance is the only solution that pulls together and automatically links an array of SEC disclosure documents, including SEC Filings, Comment Letters and Firm Memos, with FASB Codifications, Updates and Proposals.
Accounting Standards & Guidance helps accounting professionals successfully navigate a broad range of disclosure-related issues, including: drafting accounting policy disclosures for new and emerging FASB standards; getting insights from comment letters and responses as regulatory positions and accounting standards change; collaborating with colleagues and outside advisors around appropriate responses to FASB changes; and drafting new disclosures as the business evolves or following an acquisition.
Don’t wait until you receive an SEC comment letter to tackle accounting-related disclosure issues head on. Now it’s easy to move from FASB updates and proposals to the latest disclosures from peer companies and SEC comment letters with Intelligize’s Accounting Standards & Guidance. Sign up for a free trial here.