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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
  • You disclosed that user revenue has a single performance obligation. Please tell us the significant judgments used in determining that in-app purchase products should not be considered as a stand-alone performance obligation separated from subscriptions. Please refer to paragraphs 19 through 22 of ASC 606-10-25.
  • You indicate that your arrangements can include variable fees such as the option to purchase additional usage of a previously delivered software license. You also note that you include an estimate of these variable fees in the total transaction price based on expected purchase volumes. Please further explain the variable fees in these arrangements including how the additional usage is related to the delivered software license, how such fees are accounted for, as well as your consideration of the guidance in ASC 606-10-55-65. Lastly, tell us the amount of revenue recognized from these variable fees for each period presented.
  • You disclose that the majority of consideration is allocated to software and recognized upon transfer of control to your customers. Please describe the performance obligations included in your products with online functionality. Further explain the specific methods, inputs, estimations, and assumptions used in determining the standalone selling price for each performance obligation and the percentage of the transaction price allocated to each.
  • We note that revenue from subscriptions is recognized over the subscription term. We further note that subscriptions are offered for a recurring monthly or annual fee. Please tell us whether these arrangements contain a license and, if so, how you determined that revenue for arrangements that extend beyond one month should be recognized over time.
  • Tell us how you determined that you act as an agent for your production and media buying services. Please specifically address how you considered your role, if any, in creating or developing a client's marketing or corporate communications message. Refer to ASC 606-10-55-36 through 40 and ASC 606-10-50-12(c).
  • We note your presentation of disaggregated revenue by reportable segment and by location. With respect to the disclosure requirements of ASC 606-10-50-5, please tell us how you considered the guidance in paragraphs ASC 606-10-55-89 through 55-91 in selecting the appropriate categories to use to disaggregate revenue.
  • We note that a majority of your remaining performance obligations will be recognized "thereafter." Considering your multi-year arrangements, please tell us in what periods you expect to recognize the amounts included in "thereafter" and how your current disclosures reflect the appropriate time bands for your arrangements. Refer to ASC 606-10-50-13(b).

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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