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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
  • Your disclosure indicates that license revenue is recorded at a point-in-time given your determination that delivery of the intellectual property to the licensee is a distinct performance obligation. You also disclose that you record the associated milestone payment portions of transaction prices as revenue at a point-in-time. Please address the following as it specifically relates to your License and Development Agreement:
    • Identify for us the promised goods and/or services under the agreement;
    • Explain to us how you considered the development services you are required to perform in determining that the license was a distinct performance obligation;
    • Quantify for us the total transaction price, how you determined it, and the amounts allocated to the various performance obligations;
    • Tell us the method (ASC 606-10-32-8) you use to estimate variable consideration for reaching development and regulatory milestone events and the nature, amount and trigger for each constrained milestone; and
    • Provide us your accounting analysis supporting your accounting policy of recognizing milestones at a point-in-time.
  • For each type of variable consideration, please provide us an analysis supporting why the most-likely amount method is appropriate versus the expected value method. Refer to ASC 606-10-32-8.
  • Regarding your product sale revenue, please tell us the amount of each adjustment recorded during the current year to your gross-to-net variable consideration estimates made upon adoption of ASC 606 and your consideration for disclosing this information under ASC 606-10-50-10b and 50-12A. In your response, tell us the amount, if any, you reflected for any price concessions for inventory in the distribution channel and recorded as revenue upon adoption of ASC 606 given the increased competition for these products.
  • With respect to the agreement's and clinical, regulatory and commercial milestones for each product, we believe additional disclosure would improve information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from your contracts. Refer to ASC 606-10-50-1. Provide us proposed disclosure to be included in future filings that further disaggregates these aggregate amounts. Given the differences in the nature, timing, and uncertainty between clinical, regulatory and commercial milestones, we believe that separate amounts should be provided for those categories for each aggregate amount.
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