Volume 25, Issue 9

by Kaycee Dolan, Eric Knachel, and Rob Moynihan, Deloitte & Touche LLP

Introduction

Calendar-year-end public business entities adopted the FASB’s new revenue standard (ASC 606¹) in the first quarter of 2018.² While some companies made wholesale changes to their financial statements, the effect of the new requirements was less significant for others. However, all entities were affected by the standard’s new and modified quantitative and qualitative disclosure guidance, which significantly increased the amount of information disclosed about revenue activities and related transactions.

This Heads Up provides insight into our review of the disclosures in the public filings of a sample of companies that adopted the standard as of the first quarter of 2018. Entities may benefit from evaluating the disclosure trends we have observed as a result of this review. For a comprehensive discussion of the new revenue standard, see Deloitte’s A Roadmap to Applying the New Revenue Recognition Standard (the “Revenue Roadmap”).

Key Takeaways From a big-picture perspective, we observed that in many instances, the revenue disclosures were at least three times as long as the prior-year disclosures. Most entities in our sample (over 85 percent) elected to adopt the new revenue standard by using the modified retrospective approach. The new revenue standard’s requirement to provide more comprehensive disclosures is likely to significantly affect an entity’s financial statements regardless of the standard’s effect on recognition patterns. We observed diversity in the type and amount of information that entities disclosed. While some companies provided robust and thorough disclosures, particularly on the nature of performance obligations and on the significant judgments and estimates involved, others did not. Many entities have chosen to add a separate and specific revenue footnote that contains the required disclosures. When providing disaggregated revenue disclosures, the majority of entities in our sample used two or fewer categories. The most commonly selected categories presented in tabular disclosure were (1) product lines and (2) geographical regions. Most entities in our sample elected multiple practical expedients related to their ASC 606 disclosures, most commonly those related to remaining performance obligations. We expect entities to continue to refine the information they disclose as (1) they review peer companies’ disclosures, (2) accounting standard setters clarify guidance, and (3) regulators continue to issue comments.

View the rest of the Heads Up.

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¹ FASB Accounting Standards Codification Topic 606, Revenue From Contracts With Customers.

² Public business entities reporting under U.S. GAAP are required to adopt the new revenue standard for annual reporting periods (including interim reporting periods within those annual periods) beginning after December 15, 2017. Early adoption was permitted as of reporting periods (including interim periods) beginning after December 15, 2016. For nonpublic entities, the new revenue standard is effective for annual periods beginning after December 15, 2018, and early adoption is also permitted.

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