Starting to prepare for your year-end filings? PwC's Technology Institute publication, Stay informed: 2014 technology financial reporting trends, provides information on key disclosures made by companies in the technology sector. We invite you to read our benchmarking study to gain useful and thought-provoking insights that will aid you in the preparation of your upcoming filings.
We have analyzed the annual and periodic filings of 135 registrants posted on EDGAR from April 1, 2013 to March 31, 2014 by companies in the following subsectors: software & internet, computers & networking, and semiconductors, focusing on disclosures in the MD&A, risk factors and financial statements.
There has been a lot of discussion over the past year about disclosure effectiveness by regulators and standard-setters about the importance of providing investors with the right information at the right time without unnecessary clutter that detracts from the key messages. There are some steps that registrants can take to improve their disclosures by decreasing repetition and eliminating outdated information. For example, the results of our study show that on average registrants reported 35 risk factors in their annual report; the range was as low as 12 to as high as 62. Furthermore, 51% of the companies in our study repeated all of their risk factor disclosures from their annual report in their quarterly filing.
Operating metrics provide insight to investors into how management evaluates and measures a company’s performance. Our study shows that only 25% of technology companies use one or more operating metric in their Form 10-K. Companies in the software & internet subsector use operating metrics a lot more frequently compared to the other subsectors. The operating metrics most commonly used by technology companies fall within a few broad categories: number of customers, revenue per customer, customer retention, volume and pricing.
It’s not surprising that revenue recognition tops the list of critical accounting policies across all technology companies in our study. Multiple-element arrangements were common among companies in the software & internet and computers & networking subsectors (81%) and significantly less prevalent with semiconductor companies (22%). Reseller arrangements, on the other hand, are more customary in the semiconductor subsector (82%). Take a look to see which other critical accounting policies made the list.