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Revenue Recognition - ASC 606 Roundup: 1/28/2019

Posted by Graham Hulme on Jan 31, 2019 10:00:18 AM

This week’s entry will run through recent notable and instructive 10-Q filings that had frequent references to ASC 606.  Additionally, we also share a number of earnings calls and notable articles.

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.

 

Filings

BROADCOM INC.: EX-99.3 of 8-K/A for Broadcom Inc

Our thoughts:  This is an example of a scenario where M&A activities opened the door for additional ASC 606 considerations and work by the acquiring company.  In this case, the two companies involved in the M&A activities had different fiscal year calendars thus different dates of ASC 606 adoptions.  To align the financials of the companies, it was necessary to reverse the effects of ASC 606, and essentially reprocess under the ASC 605 standards, in specific 2018 periods for the company being acquired to align with the acquiring company’s ASC 606 adoption timeline.  The company provides both qualitative and quantitative information on this topic in the “Adoption of New Revenue Accounting Standard” section.

 

Earnings Calls

Rambus, Inc.: Q4 2018 Results - Earnings Call Transcript

Our thoughts:  Rambus Inc’s CFO, Rahul Mathur, provides initial ASC 606 comments starting in the 3rd reference to ASC 606 in the transcript.  The summary of results is worth reviewing as it builds up to the statement as to why there was a material difference in the timing of revenue recognition for fixed fee licensing arrangements.

If you go to the 14th and 15th references of ASC 606, the company discusses how the future impacts of ASC 606 could be “volatile.”

To cap the review, see the 21st reference to ASC 606 where an analyst, Sydney Ho, and the CFO have an exchange.  This is an example where an analyst is digging into what the results would have been under 605 compared to how these are presented under 606.  The analyst questions if there is some way for them to calculate the impact using 606 revenue numbers due to the lack of visibility and comparability in what the company presented.

 

PTC, Inc.: Q1 2019 Results - Earnings Call Transcript

Our thoughts:  The 1st through 5th ASC 606 references by PTC’s SVP, Tim Fox, focus on setting context for financial results in terms of 605 versus 606 presentation. What’s interesting as it’s a case where the company states what it will tell about 606 during the presentation and then repeats it throughout the presentation.

The 6th through 8th references of ASC 606 by Andrew Miller, PTC CFO, restates the duality of 605 versus 606 results and how the numbers will be presented.

Finally, the 11th and 12th references to ASC 606 yet again point out that the earnings call will focus on 605 results while also indicating that 606 guidance and remarks can be found in a press release on the company's website.  Overall, the company looks to offer a complete picture of its results, but this transcript reads in such a way that it could have been confusing to the reader/listener due to the duality of ASC 605 and ASC 606 topics and results.

 

Articles

Compliance Week:Comment letters show SEC forced restatement on ASC 606, by Tammy Whitehouse

Our thoughts:  This article is short yet offers value in reviewing.  It’s a prime example how ASC 606 errors led to a long string of SEC Comments and company responses ultimately leading to a restatement.  Additionally, it’s an example where a company’s initial assertion on a remediation approach was rejected by the SEC with a more involved approach prescribed.

 

Journal of Accountancy: How audit committees can oversee FASB standard adoption, by Ken Tysiac

Our thoughts:  The “Revenue Recognition” section of this article is specific to ASC 606.  Its focus on audit committees’ role in ensuring success with ASC 606 provides value as this topic is not frequently visited in other ASC 606 articles.  It offers practical approaches that should be considered to handle ASC 606 regardless of whether you are part of an audit committee or not.  

 

 

What level of risk are you willing to accept with your company’s ASC 606 adoption? What would the costs be to your company if it gets ASC 606 wrong?  What would the costs be for you?  We encourage you to visit http://www.softrax.com/contact-us for information on how SOFTRAX can help your company and you handle ASC 606.

 

Topics: Revenue Recognition, ASC 606, IFRS15, SEC Comments

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