15.1 Background and Objective

One of the goals of the FASB and IASB in the revenue project was to provide financial statement users with more useful information through improved disclosures. ASC 606-10-50-1 outlines the objective of the revenue standard’s disclosure requirements as follows:

ASC 606-10

50-1 The objective of the disclosure requirements in this Topic is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about all of the following:

Its contracts with customers (see paragraphs 606-10-50-4 through 50-16)
The significant judgments, and changes in the judgments, made in applying the guidance in this Topic to those contracts (see paragraphs 606-10-50-17 through 50-21)
Any assets recognized from the costs to obtain or fulfill a contract with a customer in accordance with paragraph 340-40-25-1 or 340-40-25-5 (see paragraphs 340-40-50-1 through 50-6).

Connecting the Dots

As discussed in Section 1.9.2, the revenue standard requires entities to disclose both quantitative and qualitative information that enables “users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.” Entities should be proactive in developing the disclosures required by the revenue standard because of the substantive system and implementation challenges that may arise when entities (1) gather the information necessary for drafting the required disclosures and (2) implement controls to review related disclosures and underlying data. Among the disclosures that may pose system and implementation challenges are those related to (1) remaining performance obligations (commonly referred to as the “backlog” disclosure), (2) contract assets and contract liabilities, and (3) disaggregation of revenue (including the relationship between disaggregated revenue and segment information). Even if the timing or amount of revenue recognized is not affected by the revenue standard, the disclosure obligations will be affected.

The revenue standard includes significant disclosure requirements, which are both quantitative and qualitative. Meeting these disclosure requirements will require significant judgment. Some disclosures may be applicable for some entities while immaterial or extraneous for others.

See Deloitte’s July 11, 2018, Heads Up for additional information about the disclosures required under the revenue standard and examples of such disclosures.

15.1.1 Level of Aggregation or Disaggregation

ASC 606-10

50-2 An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics.

Entities should (1) “consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements,”1 (2) “aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics,”2 and (3) not repeat disclosures if the information is already presented in the manner required by other accounting standards.

15.1.2 Disclosures in Comparative and Interim Periods

ASC 606-10

50-3 Amounts disclosed are for each reporting period for which a statement of comprehensive income (statement of activities) is presented and as of each reporting period for which a statement of financial position is presented. An entity need not disclose information in accordance with the guidance in this Topic if it has provided the information in accordance with another Topic.

In a manner consistent with presentation requirements, entities are required to provide the prescribed disclosures for both current and comparative periods.

Throughout this chapter of the Roadmap, we provide illustrative examples that highlight certain aspects of the revenue standard’s disclosure guidance and reflect our views on how that guidance might be applied. However, these examples are not intended to be templates or comprehensive resources. Rather, they should be regarded as tools to help entities consider key judgments and issues arising in the application of the requirements.

The illustration below gives an overview of the annual disclosure requirements in ASC 606 (there are certain exceptions for nonpublic entities; see Chapter 16).

Annual Disclosures

The illustration below gives an overview of the interim disclosure requirements in ASC 270. The items shown in gray illustrate the annual required disclosures that are not required during interim periods.

Interim Disclosures3

Refer to Section 15.1.4 for a more comprehensive summary of the disclosure requirements, including information on the disclosures that a nonpublic entity may elect not to apply as well as interim disclosures. As shown in Section 15.1.4, certain information about performance obligations (including remaining performance obligations) must still be provided in interim disclosures.

15.1.3 Omission of Disclosures

ASC 606-10-50-1 notes that the “objective of the disclosure requirements in [ASC 606] is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.” The revenue standard delineates three broad disclosure categories and detailed disclosure requirements for meeting this objective.

Throughout ASC 606-10-50, the FASB consistently uses the term “shall” in conjunction with the information specified (e.g., “shall disclose,” “shall provide,” “shall explain”). Therefore, the specific disclosures would generally be required. However, like other mandatory disclosure provisions in the Codification, those in ASC 606 do not require financial statement disclosures that are irrelevant or immaterial. In paragraph BC331 of ASU 2014-09, the FASB and IASB acknowledge that an entity needs to consider both relevance and materiality when determining the disclosures to be provided:

The [FASB and IASB] also decided to include disclosure guidance to help an entity meet the disclosure objective. However, those disclosures should not be viewed as a checklist of minimum disclosures, because some disclosures may be relevant for some entities or industries but may be irrelevant for others. The Boards also observed that it is important for an entity to consider the disclosures together with the disclosure objective and materiality. Consequently, paragraph 606-10-50-2 clarifies that an entity need not disclose information that is immaterial.

For example, an entity would most likely not discuss the methods it uses to measure progress on performance obligations satisfied over time if (1) revenue was not recognized in such a manner or (2) management concludes that the quantitative and qualitative impact of the disclosure requirement is immaterial (e.g., an immaterial portion of total revenue is recognized in such manner). However, as with other materiality assessments, entities should carefully consider whether the omission of a required disclosure represents an error. Entities are encouraged to consult with their legal and financial advisers when making such determinations.

Further, while the disclosures specified in ASC 606 are generally viewed as mandatory, the manner in which an entity satisfies each of the revenue standard’s disclosure requirements may vary significantly. ASC 606-10-50-2 specifies that an entity should evaluate the level of detail to provide in its required disclosures and the amount of emphasis to place on each disclosure requirement.

Accordingly, the level of detail or prominence that an entity includes to achieve each of the specific disclosure requirements could differ depending on the entity’s specific facts and circumstances.

The assessment of which disclosures need to be provided should be made for each reporting period since a disclosure deemed to be irrelevant or immaterial in previous periods may subsequently become relevant and material (e.g., as a result of increases in the monetary values to be disclosed or changes in qualitative factors).

15.1.4 Summary of Disclosure Requirements, Including Election for Nonpublic Entities and Interim Requirements

Category	Disclosure Requirements	Election Available to Nonpublic Entities	Interim Requirement (ASC 270)4
Disaggregation of revenue	Disaggregate revenue into categories that depict how revenue and cash flows are affected by economic factors.	Yes5	Yes
Disaggregation of revenue	Sufficient information to understand the relationship between disaggregated revenue and each disclosed segment’s revenue information.	Yes	Yes
Contract balances	Opening and closing balances (receivable, contract assets, and contract liabilities).	No	Yes
	Amount of revenue recognized from beginning contract liability balance.	Yes	Yes
	Explanation of significant changes in contract balances (using qualitative and quantitative information).	Yes	No
Performance obligations (including remaining performance obligations)	Qualitative information about (1) when performance obligations are typically satisfied, (2) significant payment terms, (3) the nature of goods or services promised, (4) obligations for returns of refunds, and (5) warranties.	No	No
	Amount of revenue recognized from performance obligations satisfied in prior periods (e.g., changes in transaction price estimates).	Yes	Yes
	Transaction price allocated to the remaining performance obligations:
	Disclosure of quantitative amounts.	Yes	Yes
	Quantitative or qualitative explanation of when remaining performance obligation amounts will be recognized as revenue.	Yes	Yes
Significant judgments and estimates	Qualitative information about determining the timing of:
	Performance obligations satisfied over time (e.g., methods of measuring progress, why methods are representative of the transfer of goods or services, judgments used in the evaluation of when a customer obtains control of goods or services).	Yes6	No
	Performance obligations satisfied at a point in time — specifically, the significant judgments used in the evaluation of when a customer obtains control.	Yes	No
	Qualitative and quantitative information7 about:
	Determining the transaction price (e.g., estimating variable consideration, adjusting for the time value of money, noncash consideration).	Yes	No
	Constraining estimates of variable consideration.	No	No
	Allocating the transaction price, including estimating stand-alone selling prices and allocating discounts and variable consideration.	Yes	No
	Measuring obligations for returns, refunds, and other similar obligations.	Yes	No
Contract costs	Qualitative information about:
	Judgments made in determining the amount of the costs incurred to obtain or fulfill a contract.	Yes	No
	The method the entity uses to determine the amortization for each reporting period.	Yes	No
	Quantitative information about:
	The closing balances of assets recognized from the costs incurred to obtain or fulfill a contract, by main category of asset.	Yes	No
	The amount of amortization and any impairment losses recognized in the reporting period.	Yes	No
Practical expedients	Disclosure of practical expedients used.	Yes8	No

Footnotes

Quoted from ASC 606-10-50-2.

See footnote 1.

IAS 34 provides the interim disclosure requirements under IFRS Accounting Standards. In addition, IFRS 15 amended IAS 34 to require entities to disclose information about disaggregated revenue from contracts with customers during interim periods. IFRS 15 does not require entities to disclose information about contract balances and remaining performance obligations on an interim basis as required under U.S. GAAP. For more information about differences between U.S. GAAP and IFRS Accounting Standards on revenue-related topics, see Appendix A.

This column represents the interim disclosure requirements in years after the year of adoption of the revenue standard.

At a minimum, a nonpublic entity must disclose revenue that is disaggregated in accordance with the timing of transfer of goods or services (e.g., goods transferred at a point in time and services transferred over time) and qualitative information about how economic factors affect revenue and cash flows.

The election available to nonpublic entities applies only to the requirement to disclose information about why the methods used to recognize revenue over time provide a faithful depiction of the transfer of goods or services to a customer. Nonpublic entities are still required to disclose the information about the methods used to recognize revenue over time in accordance with ASC 606-10-50-18(a).

This includes the methods, inputs, and assumptions used in an entity’s assessment.

However, nonpublic entities that have elected the practical expedient or policy election in ASU 2021-02 are required to disclose the practical expedient or policy election used.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.