The SOFTRAX team is proud to present the re-launch of the SOFTRAX Blog. We will continue to curate relevant content related to revenue recognition in the news, in order to help you stay informed.
This is our second Revenue Recognition Roundup in as many months, because we strongly believe in the value of staying up-to-date with the practical application of ASC 606 guidance. For further reading, please see our previous Roundup.
Below, the SOFTRAX team has collected notable examples of SEC Comment Letters that companies received specific to revenue recognition issues, along with corresponding responses.
To quickly identify ASC 606 information in the below links, click on the link, hit Control + F, enter the text “606”, “2014-09”, or “ASC” and go to your search results.
Our thoughts have also been provided for each example.
Incyte Corporation, SEC Comment Letter, with company’s responses
The SOFTRAX Viewpoint:
This is a detailed, information-filled, response that offers a solid example of how a company applies significant judgments to its revenue recognition processes. Specifically, the SEC’s question leads the company to offer details on how it handles revenue recognition for milestone-based scenarios. The company stratifies milestone scenarios into the following types:
- Revenue recognized through achievement of specific developmental or regulatory events (aka milestones) which are accounted for as variable consideration using the most likely amount method.
- Revenue recognized through sales-based achievements.
The company also hits on key revenue recognition topics such as how it identifies performance obligations as well as explaining whether the above milestone scenarios are recognized over time or at a point-in-time.
Overall, the company’s revenue recognition model appears highly complex with multiple moving parts. In this type of environment, it is imperative companies have strong revenue automation that’s repeatable, auditable, and real-time such as what SOFTRAX Revenue Manager can offer.
Briggs & Stratton Corporation, SEC Comment Letter
The SOFTRAX Viewpoint: The first response walks the reader through the company’s process to assess, analyze, and identify how it should disaggregate revenue to meet that ASC 606 disclosure requirement. The company outlines 7 different categories it used in its assessment which offers value in reviewing to determine if this aligns with what your company does or will do in the future. A quick, insightful, narrative on a key ASC 606 topic.
Maxim Integrated Products, Inc., SEC Comment Letter
The SOFTRAX Viewpoint:
This SEC Comment letter and response is also focused on ASC 606’s disclosure requirement. What’s different in this example is the SEC’s question prompted the company revisit how it disclosed disaggregated revenue. In doing so, the company acknowledged that additional categories should be added when disclosing disaggregated revenue with a corresponding narrative. In this case, having a solid, automated, revenue management application in place will allow companies to spend time doing this type of evaluation on a recurring basis (i.e. strategic analysis) rather than constantly working through multiple spreadsheets, emails, and manual efforts (tactical work) to get the revenue numbers out the door.