New revenue guidance: first quarter recap

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In the loop , PwC US Jun 28, 2018

We benchmarked disclosures under the new revenue standard in Q1 public filings. Read what we found.

What you need to know about Q1 revenue standard elections

  • The new revenue standard was effective for many public companies in the first quarter of 2018.
  • A significant majority has elected to apply the modified retrospective adoption approach and not recast prior periods.
  • Most companies disclosed disaggregation of revenue into more categories than historically provided in segment disclosures.
  • Disclosures suggest that most companies are not separately accounting for significant financing components in contracts with customers.

After months of preparation, the highly-anticipated new revenue recognition standard became effective for calendar year-end public companies in the first quarter of 2018. PwC reviewed the first quarter filings of calendar year-end companies in the S&P 500 and collected information about certain policy elections and disclosures provided under the new guidance.

Companies that have not yet adopted the new standard may benefit from reviewing the disclosures of those who have adopted. Even companies that are already applying the new guidance may find this information useful as they continue to refine and enhance their disclosures. As it is still early in the year, there are only a small number of SEC comment letters that are publicly available related to the new revenue disclosures. More insights from the SEC staff will become available later in the year as comment letters are issued and posted to the SEC’s website.

Method of adoption

The standard provides two options for adopting the new guidance: (1) a full retrospective approach, which requires recasting all periods presented to reflect the new guidance or (2) a modified retrospective approach, under which prior periods are not recast and a cumulative adjustment is recorded in the year of adoption.

The majority of companies adopting in the first quarter opted for the modified approach. Many of these companies (approximately 85%) also disclosed that the impact of adopting was not material, which may have influenced their decision to use this approach. Companies electing the modified approach are required to disclose the impact of applying the new guidance (as compared to historical guidance) in each reporting period throughout 2018.

Disaggregated revenue disclosures

Companies are now required to provide disclosures that disaggregate revenue into categories that show how economic factors affect the nature, amount, timing, and uncertainty of revenues and cash flows. The guidance doesn’t prescribe any specific categories or how many different categories to use; companies need to apply judgment to meet the disclosure objectives.

Based on our review of first quarter filings, 86% of companies disaggregated revenues into more categories than historically provided in their segment disclosures. Companies that did not disaggregate further were generally in the financial services, real estate, and healthcare/insurance industries.

The most common basis for disaggregation was by products and services, geography, and customer type. Some trends within specific industries are highlighted below.

When determining which basis to use for disaggregation, companies should consider revenue information used by key decision makers within the company as well as information provided externally. For example, revenue data discussed on analyst calls, investor presentations, company websites, and annual reports may be relevant to determining which categories of revenue are important to understanding the company’s business.

Significant financing components

The standard also requires companies to account for significant financing components in a contract. A significant financing could exist when the timing of payment from the customer differs from the timing of the company’s performance. Companies can opt to disregard a financing component if that timing difference is one year or less.

Based on our review of first quarter filings, only 27% of companies provided disclosures about significant financing components, which primarily included companies in the industrial products, technology, and pharmaceutical industries. Approximately one-third of those companies disclosed that they have elected not to account for financings because the timing difference is one year or less.

How PwC can help

To have a deeper discussion about revenue recognition at your company, please contact:

Angela Fergason

Partner, National Professional Services Group, PwC US


Matthew Albert

Senior Manager, National Professional Services Group, PwC US


Contact us

Heather Horn

US Strategic Thought Leader, National Professional Services Group, PwC US

David Schmid

IFRS & US Standard Setting Leader, National Professional Services Group, PwC US

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