August 22, 2017 — SEC Issues Updates to Interpretive Guidance on Revenue Recognition

With the effective date of SAB 116, SAB Topic 13 will no longer be applicable when a registrant adopts ASC 606. Currently, SAB Topic 13 provides the SEC staff’s views regarding general revenue recognition guidance as codified in ASC 605. SAB 116 notes that ASC 606 “provides a single set of revenue recognition principles governing all contracts with customers and supersedes the existing revenue recognition framework in [ASC 605], which eliminates the need for Topic 13.” SAB 116 also states that upon adoption of ASC 606, “a registrant should no longer look to the guidance in Securities Exchange Act Release No. 23507 and Accounting and Auditing Enforcement Release No. 108 . . . for criteria to be met in order to recognize revenue” on a bill-and-hold basis. Before the release of SAB 116, the bill-and-hold guidance of SAB Topic 13 (which is applicable until the adoption of ASC 606) is more detailed than the bill-and-hold guidance in ASC 606 with the most noticeable distinction being the requirement in SAB Topic 13 for bill-and-hold arrangements to include a fixed delivery schedule (whereas ASC 606 does not include this requirement).

SAB Topic 8 is no longer applicable upon a registrant’s adoption of ASC 606. SAB Topic 8 was specific to retail companies and previously provided the SEC staff’s views regarding (1) “the prohibition of presenting sales of a leased or licensed department within a retailer’s statement of comprehensive income consistent with the principles codified [in ASC] 605” and (2) “the disclosure of finance charges imposed by retailers on credit sales.” ASC 606 contains guidance on the identification of (1) “performance obligations in a contract with a customer,” (2) presentation of revenue as a principal (on a gross basis) or as an agent (on a net basis),” and (3) “presentation of the effects of financing in the statement of comprehensive income, which eliminates the need for the guidance in [SAB] Topic 8.”

SAB 116 modifies SAB Topic 11.A 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] 606.” Before the release of SAB 116, SAB Topic 11.A “provided the [SEC] staff’s view that revenues from operating-differential subsidies be presented as a separate line item in the income statement either under a revenue caption or as credit in the costs and expenses section.”

The SEC also issued a release3 to update its 2005 “Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement Into the Pediatric Vaccine Stockpile or the Strategic National Stockpile.” The release states upon adoption of ASC 606, manufacturers should recognize revenue for vaccines that are placed into the “Vaccines for Children Program” and the “Strategic National Stockpile” because control of the enumerated vaccines will have been transferred to the customer when the vaccines are placed into the federal government stockpile program. The guidance in the release is only applicable to the vaccine stockpile programs discussed in the release and is not applicable to any other transactions.