Chapter 18 — SEC, FASB, and Other Stakeholder Activities

18.2 SEC Activities

The SEC is a critical stakeholder given its role in both standard setting and regulating the U.S. capital markets. On August 18, 2017, the SEC staff issued SAB 116, which conforms existing SEC staff guidance with the guidance in ASC 606. As further discussed below, SAB 116 (1) supersedes both SAB Topic 13 on revenue recognition and SAB Topic 8 on retail companies and (2) modifies SAB Topic 11.A on the disclosure of operating-differential subsidies.

In addition, the SEC updated its interpretive guidance on bill-and-hold arrangements and vaccine stockpiles.

18.2.1 SAB 116 Modifications to Previously Issued SEC Staff Guidance

SAB 116 modifies previously issued SEC staff guidance as follows:

SAB Topic 13 — SAB 116 superseded SAB Topic 13 upon the adoption of ASC 606. 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 [SAB] 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.

SEC registrants should note that the bill-and-hold guidance in SAB Topic 13 (which was applicable until the adoption of ASC 606) was more detailed than the bill-and-hold guidance in ASC 606. The most noticeable distinction is that SAB Topic 13 required bill-and-hold arrangements to include a fixed delivery schedule, whereas ASC 606 does not include this requirement.
SAB Topic 8 — SAB 116 superseded SAB Topic 8 upon the adoption of ASC 606. SAB 116 notes that SAB Topic 8, which was specific to retail companies, previously 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 consistent with the principles codified [in ASC 605]” and “the disclosure of finance charges imposed by retailers on credit sales.” SAB 116 further states that the guidance in ASC 606 on the identification of performance obligations in a contract with a customer, the presentation of revenue as a principal (on a gross basis) or as an agent (on a net basis), and the presentation of the effects of financing in the statement of comprehensive income “eliminates the need for the guidance in [SAB] Topic 8.”
SAB Topic 11.A — 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].” Previously, as noted in 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.”

On November 22, 2017, the FASB issued ASU 2017-14, which rescinds certain SEC staff guidance in light of SAB 116. For additional information about ASU 2017-14, see Section 18.3.3.8.

18.2.2 Guidance on Recognizing Revenue From Vaccines Placed in a Federal Government Stockpile

On August 18, 2017, the SEC issued an interpretive release (the “2017 release”) to update the guidance in its 2005 release 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 update was provided to bring existing guidance into conformity with ASC 606. Under the guidance in the 2017 release, vaccine manufacturers should recognize revenue when vaccines are placed into U.S. government stockpile programs because control of the vaccines has been transferred to the customer. However, these entities also need to evaluate whether storage, maintenance, or other promised goods or services associated with vaccine stockpiles are separate performance obligations. The guidance in the 2017 release applies only to the vaccine stockpile programs discussed in that release and is not applicable to any other transactions.

On November 22, 2017, the FASB issued ASU 2017-14, which rescinds certain SEC guidance in legacy U.S. GAAP and codifies in ASC 606-10-S25-1 the text of the 2017 release. For additional information about ASU 2017-14, see Section 18.3.3.8.

18.2.3 Removal of Certain SEC Observer Comments

ASU 2016-11 and ASU 2017-13 removed certain SEC observer comments from the Codification (i.e., treated them as no longer effective) upon the adoption of the revenue standard. The removed SEC observer comments include ASC 605-45-S99-1 (formerly EITF Issue 00-10), which states that (1) shipping and handling fees billed to a customer are required to be classified as revenue and (2) the classification of shipping and handling costs incurred by the seller is an accounting policy decision. It is important to note that with the removal of this comment, we generally believe that it will remain appropriate to present shipping and handling within costs of goods sold because they are considered to be fulfillment costs. However, in certain instances, it may be acceptable for an entity to present shipping and handling outside of costs of goods sold. The presentation of shipping and handling costs was discussed by Barry Kanczuker, associate chief accountant in the SEC’s Office of the Chief Accountant, in a speech at the 2017 AICPA Conference on Current SEC and PCAOB Developments, in which he stated:

Given the noted absence of any guidance, I believe an entity will need to apply reasonable judgment in determining the appropriate classification of shipping and handling expenses for those shipping and handling activities that are accounted for as activities to fulfill the promise to transfer the good. Hence, the staff noted it would not object to the following approaches. First, the staff noted that it would not object to classification of these expenses within cost of sales. Second, given that there is no explicit guidance within Topic 606 related to the classification of shipping and handling expenses, the staff noted that it also would not object to an entity continuing to apply its previous policy regarding classification of these expenses, which could potentially be outside of cost of sales. I believe that a registrant that classifies significant shipping and handling costs outside of cost of sales should consider whether it should disclose the amount of such costs and the line item or items on the income statement that include them, similar to the disclosures required under the previous guidance.

See Sections 18.3.3.4 and 18.3.3.7 for further discussion of ASU 2016-11 and ASU 2017-13, respectively, which detail the rescission of certain SEC guidance.

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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.