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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
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.
  • We note that certain product promotions are recorded within operating expenses. Please describe these product promotions in greater detail. Explain to us why you are accounting for these product promotions as operating expenses, citing the applicable accounting literature. Describe to us why these product promotions are not accounted for under ASC 606 as an adjustment to the transaction price as variable consideration.
  • With respect to the 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.

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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