20.6.1 SAB Topic 11.M Disclosures

As discussed in Section 19.1.2.1, at the 2016 Baruch College Financial Reporting Conference, Wesley Bricker, the then deputy chief accountant in the SEC’s Office of the Chief Accountant, emphasized the importance of providing investors with transition-period disclosures in accordance with SAB 74 (codi ed in SAB Topic 11.M). Such disclosures should include not only an explanation of the transition method elected (as discussed in Section 20.3.1) but also disclosures that explain the impact that the new revenue standard is expected to have on an entity’s financial statements.

In providing key stakeholders with information about the expected impact of adoption on the nancial statements, entities may need to develop pro forma nancial statements (as discussed in Section 20.2.2.1) based on their anticipated transition method (full retrospective or modified retrospective) to appropriately estimate the impact of adoption.

There will not be a one-size-fits-all model for communicating the impact of adoption, but entities could consider providing (1) a short narrative that qualitatively discusses the impact of the change or, to the extent available, (2) tabular information (or ranges) comparing historical revenue patterns with the expected accounting under ASC 606. If an entity elects to discuss the qualitative aspects of its expected change, the entity may make some or all of the following types of disclosures depending on its specific facts and circumstances:

  • We expect to identify [more/less/similar] performance obligations under ASC 606 as compared with deliverables and separate units of account previously identified. As a result, we expect the timing of our revenue [to occur in earlier periods/to occur in later periods/remain the same].

  • [Many/Some/A few] of our contracts [in X business unit/Y segment/Z geography] include contingent amounts of variable consideration that we were precluded from recognizing because of the requirement for amounts to be “fixed or determinable” under SAB Topic 13. However, we anticipate that ASC 606 will require us to estimate these amounts. As a result, we expect to recognize revenue earlier under ASC 606 than we have done so under current guidance.

  • We previously recognized revenue from [many/some/a few] of our contracts [in X business unit/Y segment/Z geography] over time by using a percentage of completion model in accordance with ASC 605-35. These contracts will not meet the criteria in ASC 606 for recognizing revenue over time. As a result, we will be required to recognize revenue from those contracts later under ASC 606 than we did under ASC 605-35.

  • We previously recognized revenue from [many/some/a few] of our contracts [in X business unit/Y segment/Z geography] by using [the completed contract method under ASC 605-35/a nal deliverable model], which resulted in the recognition of revenue only upon completion of the efforts associated with these contracts. In contrast, ASC 606 will require us to recognize revenue from these contracts over time. As a result, revenue from these arrangements will increase in earlier periods.

Excerpt from Deloitte's Revenue Recognition Guide, found here.