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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
  • As it relates to your standard warranty with terms greater than one year, which you disclose obligates the company to replace parts or services your products, tell us how you considered the factors in ASC 606-10-55-33 in determining your warranties do not also include a service component and these warranties should be accounted for as a separate performance obligation in accordance with ASC 606-10-55-34. Include in your response a comparison of the warranty periods to the average life spans of each product type.
  • We note that when revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. If material, please tell us, and revise to disclose how you account for returns, if different from other variable consideration. For example, please tell us and revise to disclose if you record a refund liability and asset for the right to recover goods from your independent sales force at the time of sale. See guidance in ASC 606-10-32-10 and 606-10-55-22 through 55-29.
  • We note the discussions relating to the different services you offer to your customers. Please revise this note in future filings to address the following:
    • Identify each source of revenue and explain how you account for that revenue ("point-in-time" or "over time").
    • Explain how you account for revenues from your ongoing system performance monitoring service offered as part of your global network management services, which appears to also include software updates to customers.
    • Address your accounting for revenues from the rental equipment you deploy to customer facilities.
  • In a risk factor, you indicate you sell products and services to distributors and through direct sales. Tell us what consideration you gave to presenting disaggregated revenue by end user in accordance with ASC 606-10-50-5.
Financial statement presentation guide - Chapter 33: Revenue and contract costs
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