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ASC 606, Revenue from contracts with customers, requires more quantitative and qualitative disclosure than prior guidance. The following areas of disclosure 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 – judgments related to the level of disaggregation disclosed, and disaggregation disclosures that appear inconsistent with information provided in other parts of the filing or in other forums, such as investor presentations
The summary above is intended to provide a high level overview of the areas of disclosure that the SEC staff has been commenting on in the last year. Examples specific to this industry are as follows. 
Comment examples (generalized to identify overarching themes, with specific details pertaining to individual companies omitted)
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.
  • Your notes to the financial statements include detail of revenue by channel, as well as by your geographical segments. Also, we note that in your earnings calls and investor presentations there appears to be a focus on the product categories, and your calls discuss revenue and growth within these categories. In light of this focus on these products, please tell us the consideration you gave to disclosing the revenue related to each of these products in the notes to the financial statements. See guidance on disaggregated revenue disclosure in ASC 606-10-55-89 though 55-91
  • Your disclosure includes your accounting policy for the provision of services. Please tell us how you considered the requirement of Rule 5-03(b)(1) of Regulation S-X to separately present service revenue. We note from your disclosure on page 1 that you provide a variety of services. Please tell us how you considered disaggregation under ASC 606-10-50-5 and 55-89 to 55-91.

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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