When the new Revenue Guidance (ASC 606) became effective for all companies with fiscal years beginning after December 15, 2018, the guidance also brought a whole set of new disclosure guidelines. The objective of the disclosure requirements is to enable financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Current disclosure requirements are included in industry-specific and general recognition standards, but are limited and lack cohesion. The SEC also requires certain revenue disclosures for publicly traded companies. Current disclosure requirements using previous ASC 605 guidance only included the following:
- General requirements – accounting policies for general revenue recognition, seasonal revenue, related parties
- Specific requirements – multiple-element arrangements, nonmonetary revenue transactions, bill-and hold, fees for services
- Industry specific requirements – construction contractors, franchisors, etc.
The new disclosure requirements reflect the belief that disclosure should be more than just a compliance exercise. Qualitative information will be just as important as quantitative information for helping the reviewer better understand the nature of the organization’s contract revenue. Companies should avoid standard “boilerplate” language.
There are significant disclosure requirements in ASC 606. ASC 606-10-50-1 explains that the objective of the disclosure requirements is to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective an entity should disclose qualitative and quantitative information about the following:
|Required Annual Disclosures for Private Entities|
|Contracts with Customers (Required)|
|Disaggregated Revenue (Some Optional)|
|Disaggregated revenue recognized from contracts with customers into categories that reflect how the nature, amount, timing, and uncertainty of revenue and cash flows are impacted by economic factors? (OPTIONAL for private entities. But if not disclosed, the following two bullet points are required in lieu of this disclosure)
|Contract Balances (Some Optional)|
|Opening and closing balance of receivables, contract assets, and contract liabilities. Revenue recognized in the period that was included in the beginning of the period contract liability balance. Explanation of how the timing of payment, along with the impact of such factors on the contract assets and contract liability balances. (OPTIONAL for private entities. But if not disclosed, the following bullet point is required in lieu of this disclosure)
Ø Contract Assets
Ø Contract liabilities
|Performance Obligations (Some Optional)|
|Transaction Price Allocated to the Remaining Performance Obligations (Entirely Optional)|
||606-10-50-13 through 50-16|
|Significant Judgements (Some Optional)|
|Practical Expedients (Required)|
|Disclosure regarding the use of practical expedient about significant financing component in FASB ASC 606-10-32-18.
|606-10-50-22 through 50-23|
|Transition Disclosures (Required)|
We have included some examples of Revenue 606 disclosures from various companies. For more information, contact Andrew Wan today.Examples of Revenue 606 Disclosures for Private Companies
Click here for a printable version of examples of revenue disclosures from various companies.