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SEC conforms staff guidance to new FASB revenue recognition rules

By Ken Tysiac

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The SEC has issued a staff accounting bulletin to bring its existing guidance into conformity with FASB’s new revenue recognition standard.

Staff Accounting Bulletin (SAB) No. 116 modifies interpretive guidance included in previous staff accounting bulletins to make the interpretations consistent with FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers.

FASB issued the new revenue recognition standard in 2014. The standard is designed in part to eliminate industry-specific guidance that companies have followed for many years, promoting comparability across industries.

SAB 116 states that:

  • Topic 13 in the codification of SEC staff accounting bulletins, which provided SEC staff views on then-existing general revenue recognition guidance in ASC Topic 605, Revenue Recognition, is no longer applicable upon a registrant’s adoption of Topic 606.
  • Upon adopting Topic 606, financial statement preparers should no longer look at the guidance in Securities Exchange Act Release No. 23507 and Accounting and Enforcement Release No. 108, In the Matter of Stewart Parness, for criteria to be met to recognize revenue when delivery has not occurred (“bill-and-hold” arrangements). ASC Topic 606 provides specific guidance for bill-and-hold arrangements.
  • SEC Topic 8 guidance is no longer applicable upon a registrant’s adoption of ASC Topic 606. The need for Topic 8 guidance is eliminated because ASC Topic 606 provides guidance for the identification of performance obligations in a contract with a customer and presentation of revenue as a principal (on a gross basis) or as an agent (on a net basis), as well as presentation of the effects of financing in the statement of comprehensive income. Topic 8 provided the SEC staff’s views on the prohibition of presenting sales of a leased or licensed department within a retailer’s statement of comprehensive income, and the staff’s views on the disclosure of finance charges imposed by retailers on credit sales.
  • SEC Topic 11.A is modified to clarify that revenues from operating-differential subsidies presented under a revenue caption should be presented separately from revenue from contracts with customers accounted for under ASC Topic 606.

—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.