This week’s roundup focuses on SEC filings submitted during the week of 5/21/18.
To quickly identify ASC 606 information in the below links, click on the link, hit Control + F, enter the text “606” or “2014-09”, and click the down arrow button.
Let us know what you think, as we will tailor future weekly roundups to the most relevant, timely, content based on feedback from you, and as always, feel free to reach us at: http://www.softrax.com/about/contact-us to learn more about SOFTRAX and the value we can provide for your company’s ASC 606 adoption!
ELECTRONIC ARTS INC. 10-K:
- The bottom of page 54 and the top of page 55, in the “Impact of Recently Issues Accounting Standards” section, discuss ASC 606’s impact on the company’s revenue recognition policies, timing, and amounts.
- The company provides its assessment, the anticipated results of the ASC 606, and the descriptive examples to offer a detailed picture ASC 606’s impact.
- This section focuses on all 5 principles of ASC 606 to walk a reader through its expected impacts on the business.
Our thoughts: This is a high value filing for all parties (investors, the SEC, analysts, and financial executives from other companies adopting ASC 606); our perspective is that it’s one of the better filings reviewed to date. It’s an instructive example of a filing that hits all 5 of the core principles of ASC 606, and where applicable, offers a “story” to supplement its assessment via working examples. The company has yet to adopt ASC 606, but this filing indicates that it has spent time assessing, planning, and implementing the standard. We will keep an eye on upcoming 10-Qs for the company to align with this 10-K’s information.
KOHL’S CORPORATION, 8K:
Presentation ("ASC 606, Revenue from Contracts with Customers") dated May 22, 2018 from within its 8-K filing:https://www.sec.gov/Archives/edgar/data/885639/000156459018014118/kss-ex992_11.htm
- This standalone document has a laser focus to provide quantitative and qualitative details regarding how ASC 606 impacted the company.
- It starts with an “Overview” section that details key background details and facts then proceeds to offer a high value Accounting Overview section, on a side-by-side comparative basis, providing pre-ASC 606 versus post-ASC 606 qualitative descriptions about how key metrics and policies were impacted.
- An updated FY 2017 Income Statement then appears in a format that identifies “Previously Reported”, “Adjustments”, and “As Adjusted” columns to pair detailed quantitative information with the qualitative information provided in the prior section.
Our thoughts: The takeaway from this approach is the company aimed to be as transparent as possible in terms of its ASC 606 handling and impacts for investors and the SEC. The top-down format of the document promotes an ease of review, and understanding, that stands out compared to other filings reviewed to date. This document is worth a detailed review and should be considered as a standard to present such information for other companies.
MICROCHIP TECHNOLOGY INCORPORATED, 10-K:
- Page 18’s section named “Our reported financial results may be adversely affected by new accounting pronouncements or changes in existing accounting standards and practices, including ASC 606 which will impact our revenue recognition” makes a statement regarding how ASC 606 could negatively affect revenue recognition.
- Page 44’s “Distribution” section explain why its distributors’ inventory holding patterns may have a material impact on net sales due to ASC 606.
- Page F-20 makes a statement in the middle of the page, “The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.” References throughout the document indicate there could be adverse impacts so it’s interesting this statement is made later in the document.
- The first paragraph of page F-21 further explains the company’s decisions regarding its adoption of ASC 606 in terms of the practical expedients elected and resulting impacts.
Our thoughts: Overall, this filing’s direct statements indicate the company expects a potential adverse impact due to ASC 606. Compared to other filings reviewed to date, this statement was more declarative with respect to putting a negative impact forward. Interestingly, the company’s statement that the are still evaluating the impact the adoption will have on its financial statements (after making the statements about how the standard could adversely affect it) could lead to deeper-dive questions by the SEC. Beyond the above, the company’s reference to how the principal versus agent provisions of ASC 606 impacted it are worth a review.
ASC 606 is not a challenge your company has to face settling for limited functionality in existing systems or through high risk manual efforts. SOFTRAX provides superior experience, knowledge, products, and services to address your company’s ASC 606 needs. We encourage you to visit http://www.softrax.com/about/contact-us to learn more about SOFTRAX and the value we can provide for your company’s ASC 606 adoption.