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ASC 606, Revenue from contracts with customers, requires more quantitative and qualitative disclosure than prior guidance. The following areas have been addressed in the SEC staff's comments:
  • Performance obligations – the nature of performance obligations, why goods or services are distinct, and disclosure of remaining performance obligations. Also, comments related to information provided in other parts of the filing that appear inconsistent with the number of performance obligations in a contract
  • Transaction price - the determination of standalone selling price, including methods, inputs, and assumptions that are used in estimating transaction price and allocation to performance obligations
  • Variable consideration – the determination of the transaction price and how a company estimates variable consideration
  • Recognizing revenue – the timing of when control transfers, the method of recognizing revenue over time, and accounting for licensing arrangements
  • Gross versus net presentation – judgments related to gross versus net presentation of revenue, including an assessment of whether the company controls the good or service being provided to the end customer
  • Disaggregated revenue – disaggregation disclosures that appear inconsistent with information provided in other parts of the filing or in other forums, such as investor presentations
Comment Examples
Guidance references
  • We note from your disclosure that initial nonrefundable pre-opening service fees, including site selection and evaluation, store development and design, and operational training, are recognized upon completion of service. Please clarify your revenue recognition policy to specify the performance obligations included in contracts for licensed store arrangements. Your revised disclosure should indicate the goods or services promised in your licensing arrangements that are distinct and those that are combined to form a bundled performance obligation. Further, please disclose why you believe it is appropriate to recognize pre-opening services upon completion of service. As part of your revised disclosure, please discuss the significant judgments made by management in evaluating the timing of satisfaction of the related performance obligations and when a customer obtains control of the promised good or service in accordance with ASC 606-10-50-17 and 19.
  • We note that you provide some of your customers incentives for meeting or exceeding specified cumulative volumes or shipping to and from specific locations. Please tell us if you consider the volume-based rebates as variable consideration and, if so, which method you used to estimate the amount of variable consideration (projected future shipments) pursuant to ASC 606-10-32-8. Revise to disclose this method in accordance with ASC 606-10-50-20(a).
  • Please provide us with your analysis regarding how you determined you had one performance obligation in your events and public relations arrangements. In addition, tell us how you determined you were acting as the principal in these arrangements. Reference ASC 606-10-25-19 through 22 and ASC 606-10-55-36 through 40.
  • We note your disclosure that you record revenue for minimum guarantees over the license period. Clarify in your footnote whether the licenses are functional or symbolic licenses and the pattern over which minimum guarantees are recognized over the license period. If revenue is recognized ratably, explain how this depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services in accordance with ASC 606-10-10-2. Refer to the guidance in ASC 606-10-55-57 through 63 and ASC 606-10-55-65.
  • We note that your development service contract revenues are generally recognized over time based upon labor hours expended relative to the total expected hours. Please revise your disaggregated revenue disclosures provided under ASC 606-10-50-5 to adequately depict the nature and timing of your revenues. Pursuant to ASC 606-10-50-18, disclose why this method provides a faithful depiction of the transfer of your goods or services.

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