This week’s edition covers notable news topics and SEC Filings.
To quickly identify ASC 606 information in the below links, click on the link, hit Control + F, enter the text “606” or “2014-09” or "ASC" and click through your search results.
NewsSEC Charges Telecommunications Expense Management Company With Accounting Fraud:
CFO.com, “SEC: Telecom Firm Artificially Boosted Revenue”, by Vincent Ryan:
Our thoughts: The press release and article focus on a case of intentional misstatements of revenue by a public company. This case is an illustration of the need for comprehensive controls, processes, and applications to prevent such occurrences. The potential for these types of schemes can be minimized, if not eliminated, via the introduction of a full revenue management application that audits and controls all revenue sub-ledger activities.
Harvard Business Review, “What Would Happen if the U.S. Stopped Requiring Quarterly Earnings Reports?”, by Shivaram Rajgopal:
MarketWatch, Inc., “The questions every investor should ask about Trump’s proposal to radically change how companies report earnings”, by Ciara Linnane, Tomi Kilgore, and Francine McKenna:
Our thoughts: With the advent of ASC 606 for revenue and ASC 842 for leases, as well as references from President Trump back in August, the notion of doing away with quarterly financial reporting has become a frequent topic in the news. The above two articles spend time analyzing benefits, costs, pros, and cons of both sides of this argument. Due to its intersection with the quarterly level of effort to report on revenue under ASC 606, these articles hold value to review.
The Motley Fool, “This Synthetic Biology Stock Is Soaring, but Investors Shouldn't Overlook a Key Risk”, by Maxx Chatsko:
Our thoughts: This article offers a critical assessment of how a company’s handling of royalty revenues under ASC 606 could be to the detriment of accuracy in its financial reporting to investors and external parties as whole. This is a concise, well-written, article worth a read as its argues ASC 606 could be distorting the accuracy of a company’s financial results, contrary to the central goal of ASC 606.
QAD Inc., 10-Q:
- Page 5 provides a high-level summary of the impacts of ASC 606 on the company’s financial results in a bullet format.
- Pages 6 through the top of 10 provide financial results in ASC 606 compared to ASC 605.
- Disaggregation of revenue is presented on page 12.
- Pages 12 through 14 focuses on the remaining key areas of ASC 606 such as significant judgements, practical expedients, and contract balances. Of note is the “Significant Judgements” section, as it delves into details regarding how the company plans to handle assessment and assignment of standalone selling prices to performance obligations.
Our thoughts: This filing has 33 references to ASC 606 in it but presents this information in a clean, concise, format. The company’s approach to bullet out the summary of impacts and then offer specific sections related to each key area of ASC 606’s guidance, with to-the-point qualitative and quantitative information, represents a solid format for companies to review and consider.
MONGODB, INC., 10-Q:
Our thoughts: This filing is of a company that has yet to adopt ASC 606. The value in doing a quick read through its “New Accounting Pronouncements Not Yet Adopted” section is that it offers a picture of the company’s ASC 606 assessments to date. This is a good read for public companies yet to adopt as well as private companies that are in the process of working through ASC 606 adoptions.
CISCO SYSTEMS, INC., 10-K:
Our thoughts: This filing is of a company that has yet to adopt ASC 606, but is on the precipice of doing so. As a result, this filing offers expected ASC 606 impacts at a detailed level. Of note is the tabular format the company displays on page 75 regarding how its software arrangements revenue recognition methods will be changed between ASC 605 and ASC 606. This side-by-side presentation is something for companies to consider going forward even if they are a quarter or two into adoption to facilitate transparency and ease of reading in future filings for ASC 606 information/impacts.
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