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33.4 Revenue disclosures
Publication date: 31 May 2023
us Financial statement presentation guide
Reporting entities must disclose certain qualitative and quantitative information so that financial statement users can understand the nature, amount, timing, and uncertainty of revenue and cash flows generated from their contracts with customers. These disclosures can be extensive and may require significant management judgment.
Excerpt from ASC 606-10-50-1
An entity shall disclose qualitative and quantitative information about all of the following:
- Its contracts with customers…
- The significant judgments, and changes in those judgments, made in applying [the revenue standard] to those contracts…
- Any asset recognized from the costs to obtain or fulfill a contract with a customer
Management should consider the level of detail necessary to meet the disclosure objective. For example, a reporting entity should aggregate or disaggregate information, as appropriate, to provide clear and meaningful information to a financial statement user. The level of disaggregation is subject to judgment.
Management must also disclose the use of certain practical expedients. A reporting entity that uses the practical expedient regarding the existence of a significant financing component (RR 4) or the practical expedient for expensing certain costs of obtaining a contract (RR 11), for example, must disclose that fact.
Disclosures are included for each period for which a statement of comprehensive income is presented and as of each reporting period for which a statement of financial position is presented. The requirements only apply to material items. Materiality judgments could affect whether certain disclosures are necessary or the extent of the information provided in the disclosure. Reporting entities need not repeat disclosures if the information is already presented as required by other accounting standards.
Figure FSP 33-3 summarizes the annual disclosures required by the revenue standard.
Figure FSP 33-3
Annual disclosure requirements
Annual disclosure requirements
Disclosure type |
Required information |
Disaggregated revenue
|
Disaggregation of revenue into categories that show how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows
|
Reconciliation of contract balances
|
|
Performance obligations
|
|
Significant judgments
|
|
Costs to obtain or fulfill a contract
|
|
Disclosure requirements are discussed in more detail below.
33.4.1 Disaggregated revenue
The revenue standard does not prescribe specific categories for disaggregation, but instead provides examples of categories that might be appropriate. A reporting entity may need to disaggregate revenue by more than one type of category to meet the disclosure objective.
When selecting the type of category (or categories) to use to disaggregate revenue, an entity should consider how information about the entity’s revenue has been presented for other purposes, including all of the following:
- Disclosures presented outside the financial statements (for example, in earnings releases, annual reports, or investor presentations)
- Information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments
- Other information that is similar to the types of information identified in (a) and (b) and that is used by the entity or users of the entity’s financial statements to evaluate the entity’s financial performance or make resource allocation decisions.
Examples of categories that might be appropriate include, but are not limited to, all of the following:
- Type of good or service (for example, major product lines)
- Geographical region (for example, country or region)
- Market or type of customer (for example, government and nongovernment customers)
- Type of contract (for example, fixed-price and time-and-materials contracts)
- Contract duration (for example, short-term and long-term contracts)
- Timing of transfer of goods or services (for example, revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time)
- Sales channels (for example, goods sold directly to consumers and goods sold through intermediaries).
Question FSP 33-8
Will a reporting entity’s disaggregated revenue disclosure always be at the same level as its segment disclosures?
Will a reporting entity’s disaggregated revenue disclosure always be at the same level as its segment disclosures?
PwC response
No. The revenue standard requires reporting entities to explain the relationship between the disaggregated revenue required by the revenue standard and the information required by the accounting standard on operating segments. Management should not assume the two disclosures will be disaggregated at the same level. More disaggregation might be needed in the revenue footnote, for example, because the operating segments standard permits aggregation in certain situations. The revenue standard does not have similar aggregation criteria. However, if management concludes that the disaggregation level is the same in both standards and segment revenue is measured on the same basis as the revenue standard, then the segment disclosure would not need to be repeated in the revenue footnote.
This disclosure is illustrated in Example 41 of the revenue standard (ASC 606-10-55-296 through ASC 606-10-55-297).
33.4.2 Reconciliation of contract balances
The purpose of these disclosures is to provide information about contract balances and the changes in those balances. The revenue standard provides for flexibility in how this information is presented from a formatting perspective (that is, it does not mandate a tabular presentation), but it does require certain items to be disclosed.
Excerpt from ASC 606-10-50-8
An entity shall disclose all of the following:
- The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed
- Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period
An entity shall provide an explanation of the significant changes in the contract asset and the contract liability balances during the reporting period. The explanation shall include qualitative and quantitative information. Examples of changes in the entity’s balances of contract assets and contract liabilities include any of the following:
- Changes due to business combinations
- Cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress, a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained), or a contract modification
- Impairment of a contract asset
- A change in the time frame for a right to consideration to become unconditional (that is, for a contract asset to be reclassified to a receivable)
- A change in the time frame for a performance obligation to be satisfied (that is, for the recognition of revenue arising from a contract liability).
A reporting entity should also explain how the timing of satisfaction of its performance obligations compares to the typical timing of payment and how that affects contract asset and liability balances. This information can be provided qualitatively.
33.4.3 Performance obligations
There are multiple quantitative and qualitative disclosures that reporting entities are required to provide about their performance obligations.
33.4.3.1 Description of performance obligations
Reporting entities must include information to help readers understand the nature of its performance obligations. These disclosures should not be “boilerplate” and should supplement the reporting entity’s revenue accounting policy disclosures.
An entity shall disclose information about its performance obligations in contracts with customers, including a description of all of the following:
- When the entity typically satisfies its performance obligations (for example, upon shipment, upon delivery, as services are rendered, or upon completion of service) including when performance obligations are satisfied in a bill-and-hold arrangement
- The significant payment terms (for example, when payment typically is due, whether the contract has a significant financing component, whether the consideration amount is variable, and whether the estimate of variable consideration is typically constrained...)
- The nature of the goods or services that the entity has promised to transfer, highlighting any performance obligations to arrange for another party to transfer goods or services (that is, if the entity is acting as an agent)
- Obligations for returns, refunds, and other similar obligations
- Types of warranties and related obligations.
33.4.3.2 Remaining performance obligations
The revenue standard requires disclosure of information about the transaction price allocated to remaining performance obligations and when revenue will be recognized related to these obligations. This could require judgment, as it might not always be clear when performance obligations will be satisfied, especially when performance can be affected by factors outside the reporting entity’s control. Reporting entities should explain whether any amounts have been excluded from the transaction price and therefore excluded from the disclosure, such as variable consideration that has been constrained.
An entity shall disclose the following information about its remaining performance obligations:
- The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period
- An explanation of when the entity expects to recognize as revenue the amount disclosed [in (a) above], which the entity shall disclose in either of the following ways:
- On a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations
- By using qualitative information.
The revenue standard is not prescriptive regarding the format of disclosure. Therefore, management has discretion regarding the nature and extent of information needed to achieve the objective of the disclosure, which will depend on the reporting entity’s facts and circumstances. Examples 42 and 43 (ASC 606-10-55-298 through ASC 606-10-55-307) of the revenue standard illustrate a quantitative and qualitative approach, respectively, to satisfying this disclosure requirement.
Reporting entities can elect to omit disclosure of information about the transaction price allocated to remaining performance obligations and when revenue will be recognized when the related contract has a duration of one year or less.
Additionally, reporting entities may elect to exclude variable consideration from the disclosure in the following scenarios:
- the reporting entity recognizes revenue equal to what it has the right to invoice when that amount corresponds directly with the value to the customer of the reporting entity’s performance to date (refer to RR 6.4.1.1).
- the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property (refer to RR 4.3.5).
- the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied distinct good or service within a series of distinct goods or services (refer to RR 5.5.1.1).
The option to exclude information in the above three scenarios applies only to variable consideration in a contract; that is, the reporting entity would be required to disclose any fixed transaction price in the contract that is allocated to remaining performance obligations.
Reporting entities that elect any of the permitted exemptions are required to disclose which exemptions have been applied, the nature of the performance obligations, the remaining duration, and a description of the variable consideration that has been excluded from their disclosures.
Question FSP 33-9
A reporting entity enters into a master services agreement (MSA) on March 31, 20X1 that includes the general terms and pricing for Product A and requires the customer to purchase a minimum of 1,000,000 units over a three-year term. The timing of purchases is not known until the customer submits purchase orders for a specified number of units. The pricing of units in excess of the minimum is not at a discount (i.e., there is no material right). What should the reporting entity include in its disclosure of remaining performance obligations as of March 31, 20X1?
A reporting entity enters into a master services agreement (MSA) on March 31, 20X1 that includes the general terms and pricing for Product A and requires the customer to purchase a minimum of 1,000,000 units over a three-year term. The timing of purchases is not known until the customer submits purchase orders for a specified number of units. The pricing of units in excess of the minimum is not at a discount (i.e., there is no material right). What should the reporting entity include in its disclosure of remaining performance obligations as of March 31, 20X1?
PwC response
The transaction price related to the 1,000,000 unit minimum should be included in the disclosure of remaining performance obligations because the MSA commits the parties to the purchase and sale of these units. The reporting entity should not include in the disclosure the transaction price for any units in excess of the required minimum of 1,000,000 units, even if such orders are expected. The customer has not yet committed to the purchase of any units in excess of the minimum and therefore, these units are optional purchases.
33.4.3.3 Revenue from previously satisfied performance obligations
Reporting entities must also disclose revenue recognized in the current period that did not result from current period performance.
An entity shall disclose revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, changes in transaction price).
This disclosure would include items such as changes in estimates of variable consideration, changes in estimates related to the measure of progress for performance obligations satisfied over time, and sales or usage-based royalties related to a license for which control transferred in a prior period.
33.4.4 Significant judgments
A reporting entity must disclose its judgments, as well as changes in those judgments, that significantly impact the amount and timing of revenue from its contracts with customers.
For performance obligations that an entity satisfies over time, an entity shall disclose both of the following:
- The methods used to recognize revenue (for example, a description of the output methods or input methods used and how those methods are applied)
- An explanation of why the methods used provide a faithful depiction of the transfer of goods or services.
For performance obligations satisfied at a point in time, an entity shall disclose the significant judgments made in evaluating when a customer obtains control of promised goods or services.
An entity shall disclose information about the methods, inputs, and assumptions used for all of the following:
- Determining the transaction price, which includes, but is not limited to, estimating variable consideration, adjusting the consideration for the effects of the time value of money, and measuring noncash consideration
- Assessing whether an estimate of variable consideration is constrained
- Allocating the transaction price, including estimating standalone selling prices of promised goods or services and allocating discounts and variable consideration to a specific part of the contract (if applicable)
- Measuring obligations for returns, refunds, and other similar obligations.
33.4.5 Costs to obtain or fulfill a contract
Reporting entities must provide information about how assets are recognized from costs to obtain or fulfill a contract with a customer, and how the assets are subsequently amortized or impaired.
An entity shall describe both of the following:
- The judgments made in determining the amount of the costs incurred to obtain or fulfill a contract with a customer...
- The method it uses to determine the amortization for each reporting period.
An entity shall disclose all of the following:
- The closing balances of assets recognized from the costs incurred to obtain or fulfill a contract with a customer…, by main category of asset (for example, costs to obtain contracts with customers, precontract costs, and setup costs)
- The amount of amortization and any impairment losses recognized in the reporting period.
33.4.6 Additional disclosure requirements for long-term contracts
Regulation S-X Rule 5-02(3) and Regulation S-X Rule 5-02(6) include additional disclosure requirements for certain long-term contracts.
Regulation S-X Rule 5-02(3)(c) requires the following disclosures for receivables under long-term contracts, either on the balance sheet or in a footnote:
Excerpt from Regulation S-X Rule 5-02(3)(c)
- Balances billed but not paid by customers under retainage provisions in contracts
- Amounts representing the recognized sales value of performance and such amounts that had not been billed and were not billable to customers at the date of the balance sheet. Include a general description of the prerequisites for billing.
- Billed or unbilled amounts representing claims or other similar items subject to uncertainty concerning their determination or ultimate realization. Include a description of the nature and status of the principal items comprising such amount.
- With respect to (1) through (3) above, also state the amounts included in each item which are expected to be collected after one year. Also state, by year, if practicable, when the amounts of retainage (see (1) above) are expected to be collected.
Regulation S-X Rule 5-02(6)(d) requires the following disclosures relating to contract costs:
Excerpt from Regulation S-X Rule 5-02(6)(d)
- The aggregate amount of manufacturing or production costs and any related deferred costs (e.g., initial tooling costs) that exceeds the total estimated cost of all units (whether in-process or delivered). This should be based on the estimated average cost of all units expected to be produced under long-term contracts and programs (even if not yet complete), as well as amounts that would not be absorbed in cost of sales based on existing firm orders at the latest balance sheet date. If practicable, also disclose the amount of deferred costs by type of cost (e.g., initial tooling, deferred production, etc.).
- The aggregate amount of contract claims or other similar items subject to uncertainty, including a description of the nature and status of the primary items comprising the amount.
- The amount of progress payments netted against inventory at the balance sheet date.
33.4.7 Interim disclosure requirements
Public reporting entities must include many of the same disclosures in their interim financial statements that are required in annual financial statements.
Excerpt from ASC 270-10-50-1A
- A disaggregation of revenue for the period...
- The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers (if not otherwise separately presented or disclosed)...
- Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period...
- Revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, changes in transaction price)...
- Information about the entity’s remaining performance obligations as of the end of the reporting period
Interim financial reporting standards also require reporting entities to provide certain disclosures about significant changes in a reporting entity’s financial position, which include changes relating to revenue. Refer to FSP 29 for further discussion of interim reporting requirements.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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