July 30, 2018

Eight Revenue Recognition Disclosure Trends

This Deloitte memo looks at disclosure trends under the new revenue recognition standard. Here’s eight key takeaways:

1. Many revenue disclosures were at least three times as long as the prior-year disclosures.

2. Over 85% of surveyed companies elected to adopt the new revenue standard by using the modified retrospective approach.

3. The new requirement to provide more comprehensive disclosures significantly affects financial statements regardless of the standard’s effect on recognition patterns.

4. Not everybody is adding a lot of disclosure. While some companies provided robust and thorough explanations, particularly on the nature of performance obligations and on the significant judgments and estimates involved, others didn’t.

5. Many companies chose to add a separate and specific revenue footnote that contains the required disclosures.

6. When providing disaggregated revenue disclosures, a majority of surveyed companies used two or fewer categories. The most commonly selected categories presented in tabular disclosure were (1) product lines and (2) geographical regions.

7. Most surveyed companies elected multiple “practical expedients” related to their ASC 606 disclosures, most commonly those related to remaining performance obligations.

8. We expect companies to continue to refine the information they disclose as (1) they review peer companies’ disclosures, (2) accounting standard setters clarify guidance, and (3) regulators continue to issue comments (see this recent blog from John about comment letter trends – also see this blog from Steve Quinlivan).

Elad Roisman Tapped as Next SEC Commissioner

This one slipped by us. Elad Roisman has been nominated as the person to replace Mike Piwowar as SEC Commissioner. And last week, the Senate Banking Committee held a confirmation hearing. Elad would be yet another former Senate Banking Committee Staffer to serve as a Commissioner (as John blogged recently, the confirmation process tends to go smoothly for these staffers before their colleagues).

This article notes that much of the hearing focused on enforcement priorities, given the huge year-over-year decline in actions & penalties.

More on “An Anti-ESG Campaign Begins”

A few months ago, I blogged about the “Main Street Investors Coalition” & its initiative to limit the ESG influence of large asset managers. This tone seems to play to Chair Clayton’s focus on retail investors. In recent testimony, he noted: “One area in particular I believe we should analyze is whether the voices of long-term retail investors are being underrepresented, misrepresented or selectively represented in corporate governance.”

But for a rebuttal to this Coalition, see this NYT DealBook article – and this blog from Nell Minow of ValueEdge Advisors. Here’s an excerpt:

The “Main Street Investors Coalition” completely overlooks the fact that institutional investors are fiduciaries representing everyday working people like teachers, firefighters, and employees of publicly traded companies. What the folksy-sounding, corporate-front Main Street Investors want to do is divide and conquer. They know they can no longer rely on the support of investors smart and focused enough to tell when corporate management has gone off the track and big enough to make their views meaningful.

So, they pretend to be concerned about some mythic, stock-picking investors who will read through the proxy statements and decide to vote for management’s recommendation. If MSIC really cared about the power of individual shareholders, and if in fact they controlled the single largest pool of equity capital in the world, it would help them to vote their proxies more effectively. It would help them provide oversight to the institutions who manage their money, perhaps circulating reports on the annual disclosures of how the funds vote. After all, index funds have the same fees and returns, but there are differences in how they vote their proxies. Then the investors could decide whether, for example, Vanguard’s votes on CEO pay were more appealing than Fidelity’s.

MSIC’s faux populism about the “real” investor being mom and pop and their little basket of stocks ignores the reality that most working people invest through intermediaries like mutual funds because they perform better. The whole idea of institutional investors is based on the reality that they do better than individuals who do not have the time, resources, or expertise. And it makes sense that the same people who make the buy, hold, and sell decisions should make the decisions about how to vote on proxies as well.

MSIC is not a membership organization. Its board does not include representatives of the groups that actually do work with small investors, like, for example, the American Association of Individual Investors, which has excellent educational materials for its members, or Motley Fool and FolioInvesting, which provide services for individual investors. Instead, MSIC has “partners” like the powerful corporate lobbying group the National Association of Manufacturers and the anti-public pension fund American Council for Capital Formation, which says on its website that its purpose is “exposing the politicization of corporate governance.”

Liz Dunshee