SEC Commentary on ASC 606 Revenue Recognition Disclosures

Learn about which ASC 606 disclosures are getting the most SEC comments.

Jun 22, 2020

As of January 31, 2020, the SEC had issued 160 comment letters concerning revenue recognition disclosure requirements (ASC 606-10-50). As shown in the chart below, most of the letters were uploaded during the second half of 2018, with more trickling in throughout 2019. We can find patterns and pain points when looking at the letters collectively. Certain disclosure requirements received a lot of attention, and certain industries struggled more than others. What exactly have we learned from the initial wave of comment letters?

SEC Comment Letters were issued most between June and December 2018.

Most Commented Revenue Recognition Disclosure Issues

The questions raised in the160 comment letters reveal where the SEC focused its attention. The SEC sent at least one comment letter relating to each of the individual paragraphs within ASC 606-10-50, but some issues were far more prevalent than others.

The letters often mentioned multiple paragraphs. When analyzing the letters, we grouped some of the paragraphs into distinct “subtopics” based on the FASB codification headers. For example, paragraph 12 is found inside the “performance obligations” section of the codification in ASC 606-10-50. Paragraphs 18 and 19 both deal with timing issues, etc. Here is a look at the different topics that received the most commentary:

SEC Comment Letters related to disclosures cover a variety of topics with over 50% addressing performance obligations, timing of satisfaction, or allocation to remaining performance obligations.

Disclosures surrounding performance obligations, timing of revenue recognition, price allocation to unsatisfied performance obligations, and transaction price considerations received the most attention. Contract balances, disaggregation of revenues, and significant judgments also drew some heat. We looked closely at the top four topics to uncover the issues that companies were experiencing with providing proper disclosures.

Disclosures About Performance Obligations

When the SEC commented on disclosure requirements for performance obligations, it mainly touched on the nature and timing of performance obligations, principal vs. agent relationship considerations, significant payment terms, and licensing arrangements.

Nature and Timing:

Companies are required to disclose the nature and timing of the different aspects of performance obligations. When the SEC asked about the nature and timing of performance obligations, it was usually because companies failed to clearly explain the obligations to financial statement users.

Most of the letters addressing this issue looked like the following comment that AT&T received on September 19, 2018: “Please tell us the nature of the specific goods and services that you consider separate performance obligations, particularly as it relates to video entertainment, legacy voice and data as well as strategic services. Please refer to ASC 606-10-50-12.”  In its response to the broad comment, AT&T explained in greater depth its various products and how it packages them for customers, how it delivers the products, and how it evaluates the sales for revenue recognition purposes.

Principal vs agent:

The SEC commented on principal vs agent considerations when it was unclear how companies arrived at their conclusions. Regardless of whether the SEC agreed with the conclusion, the issue seemed to be that companies did not explain the rationale behind their conclusions to financial statement users. A letter written to Interpublic Group of Companies on December 20, 2018 is a typical example. In the letter, the SEC requested that the company “more fully discuss how you determined that you act as an agent for production services and media buying service. Reference ASC 606-10-50-12.”

Significant Payment Terms:

Companies frequently engage in transactions that involve payment provisions. These components affect the timing and risk of payments and must meet certain additional disclosure and presentation requirements.

The SEC sent many letters like the letter it sent to Delta Air Lines on July 16, 2018. In the letter, the SEC requested that Delta “revise to disclose significant payment terms for sales of mileage credits to credit card companies, hotels, and car rental agencies pursuant to ASC 606-10-50-12(b).” Though Delta appeared to have properly accounted for the transactions, the SEC prodded for more details. Delta thought that it met the disclosure requirements for the financing components and variable considerations associated with the transactions. However, Delta conceded that in future filings it would disclose (in more detail) the significant payment terms associated with the sale of miles.


Much of the licensing commentary was geared toward disclosures related to functional and symbolic licensing arrangements. For companies offering digital media libraries, a frequent question related to licenses was whether new content and existing content represent two different performance obligations, and whether the associated explanations and disclosures are included.

In a letter to Comcast, dated November 5, 2018, the SEC wrote, “Please revise your disclosure in future filings to clarify that you consider your distribution agreements to be functional licenses of intellectual property. Please refer to ASC 606-10-50-12.” Comcast agreed to revise its disclosure for future filings to state that it accounts for distribution agreements as functional licenses.

The SEC highlighted its point regarding new and existing content in a Sept. 24, 2018 letter written to NBCUniversal:

Please tell us if content licensing agreements include promises to provide content libraries. If these arrangements are material, please tell us how you considered if existing content and new content represent separate performance obligations and explain how you considered judgments in determining both amounts allocated to and the timing of satisfaction of each performance obligation. Refer to ASC 606-10-50-12 and 606-10-50-17.

NBCUniversal explained the significant judgments it made in concluding that it does not have a promise to provide access to a content library with a concurrent promise to refresh the library as new content is created.

Disclosures About Timing of Revenue Recognition

ASC 606-10-50-18 and 50-19 contain disclosure requirements for the timing of revenue recognition from contracts with customers. In recent comment letters, the SEC requested deeper explanations regarding the judgments that companies made to determine when control is transferred to the customer. Additionally, the SEC asked many companies why the method used to determine the timing of revenue provides the most faithful depiction of the transfer of control. Other comments were more focused on the methods, inputs, and estimates that companies used in measurements.

For example, the SEC sent a comment to Starbucks on July 8, 2019 that said, “Please revise your disclosure to include your explanation of why recognition of the upfront payment of $7 billion on a straight-line basis over the economic life of the arrangement provides a faithful depiction of the transfer of goods or services pursuant to ASC 606-10-50-18.” This is to ensure that companies are clarifying not only the conclusion they arrived at, but also why the conclusion most accurately represents the transfer of control.

The SEC’s focus on methods, inputs, and estimates is further demonstrated in a May 29, 2019 comment letter to Dillard’s:

Please tell us your consideration of disclosing your revenue recognition policy related to internet sales. Also, please tell us and revise to clarify if revenue from private label cards is recognized over time or at a point in time. In addition, please clarify the methods used to measure progress, if applicable, and why the methods reflect a faithful depiction of the transfer of the goods and services. Reference ASC 606-10-50-18 and 19.

Dillard’s had included a fair disclosure of its methods, inputs, and estimates for private label programs in a different part of its 10-K filing but, in its response to the SEC, agreed that in future filings it would “include this disclosure within our Revenue Recognition description under Note 1.”

Disclosures About Allocation to Remaining Performance Obligations

ASC 606-10-50-13 through 50-16 spells out disclosure requirements for performance obligations that remain unsatisfied. Filers should disclose the amount still unsatisfied, an expectation of when revenues will be recognized (based on both qualitative and quantitative analyses), and the reasoning behind any exceptions.

One example of how the SEC comments on these issues is found in its letter to Avid Technology, dated November 29, 2018:

Please tell us and disclose the transaction price allocated to the performance obligations that are unsatisfied as of September 30, 2018 and explain when you expect to recognize such amount. Refer to ASC 606-10-50-13. This would appear to include amounts referred to as Other Backlog as provided in the Form 8-K furnished on November 11, 2018. If you are applying the practical expedient in 606-10-50-14 please tell us and disclose. Refer to 606-10-50-15.

Even if companies utilize the practical expedient found in paragraph 14, they still must disclose the practical expedient election in their filings. Though the SEC more generally prodded companies to disclose broad information about remaining obligations, it also sometimes asked for finer detail and analysis.

In its letter to Sunrun, Inc. on October 1, 2018, the SEC drilled down on certain key details:

You disclose that you had contracted but not yet recognized revenue of approximately $4.4 billion as of June 30, 2018 of which you expect to recognize approximately 6% over the next twelve months and the remainder thereafter through the remaining initial term of the customer agreement. Please tell us how you considered that these two time bands would be the most appropriate to explain when you expect to recognize the revenue related to your remaining performance obligations given the initial band only represents 5% of a 20 year remaining initial term of the customer agreement. Refer to ASC 606-10-50-13b.

In its response, Sunrun proposed an adjustment to its disclosures and concluded that the disclosure would give financial statement users more information about the amount, timing, and trends related to the remaining performance obligations:

Contracted but not yet recognized revenue was approximately $4.4 billion as of June 30, 2018, of which the Company expects to recognize approximately 6% over the next 12 months. The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing Customer Agreements have at least 10 years remaining, given that the average age of our fleet of residential solar energy systems under Customer Agreements is less than three years due to the Company being formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the following 10 years as the typical 20 year initial term expires on individual Customer Agreements.

Disclosures About Transaction Price

When it came to transaction price disclosures, the SEC seemed to focus particularly on guarantees, variable consideration, and associated constraints. The SEC also focused on the disclosures for returns and refunds.

For example, the SEC sent a comment letter to Old Dominion Freight Line on June 15, 2018 asking for the following information:

We note from your disclosure on page 11 (Revenue) that fuel surcharges increased to 12.8% of total revenue in the first quarter of 2018, and you regularly monitor the components of your pricing, including fuel surcharges. Please tell us if fuel surcharge revenues represent variable consideration under ASC 606 and, if so, tell us and revise your future filings to disclose how you estimate variable consideration amounts, including how you assess the constraint (if applicable) and how you allocate this variable consideration to the performance obligations.

The SEC’s comment to Avis Budget, dated November 27, 2018 demonstrates issues related to disclosures for obligations for returns and refunds. In this letter, the SEC asked Avis to “tell us your consideration of disclosing any obligations for refunds and other similar obligations pursuant to ASC 606-10-50-20(d).” Understanding this information helps financial statement users to better gauge the likelihood of returns and refunds occurring.

Most of the SEC’s commentary on disclosures was unique to each company and circumstance, but by understanding the trends above, companies can make proper disclosures that provide financial statement users with the clearest picture possible. In the next section, we describe how SEC commentary on disclosures varied among industries.

Most Commented Industries

ASC 606 did away with industry-specific guidance, but revenue recognition under the new standard can still be complex within certain industries, inviting questions from the SEC. The 15 industries (categorized by SIC codes – a four-digit code that identifies the primary business of a company) that received the most comment letters are as follows:

SEC Comment Letters on Disclosures were issued most to companies in the prepackaged software, cable/other pay TV services, business services, advertising agencies, and computer integrated systems industries.

We examined comment letters sent to each industry and identified the most common issues for each one. For the six industries that received the most comment letters, we have compiled the most frequently commented topics along with links to example SEC comment letters. Both the SEC’s questions and the company’s responses can be found in the links provided below.

Disclosure Issues in the Prepackaged Software Industry:

Prepackaged software industry comment letters focused most on performance obligations, timing of satisfaction, and allocation to remaining performance obligations.

CompanyLetter DateTopicComment #Avid Technology, Inc.11/29/2018Remaining POs1VMWare, Inc.08/08/2018Timing1Tenable Holdings05/24/2018Judgments15Autodesk, Inc.08/03/2018Various1, 3, 4Symantec02/21/2019General6Commvault Systems, Inc.10/19/2017Timing3Ultimate Software Group, Inc.09/25/2018Contract Balance1Teradata Corp.10/17/2018Contracts/Timing3, 4Microsoft Corp.12/14/2017Timing/Obligations2, 3Sailpoint Technologies Holdings05/31/2019Timing2Fastly, Inc.05/03/2019Disaggregation2

Disclosure Issues in the Cable/Television Services Industry:

Comment Letters in the Cable/Television Services industry addressed performance obligations, transaction price and allocation, and significant judgments most.

CompanyLetter DateTopicComment #NBCUniversal Media, Inc.09/24/2018Price, PO, Judgments1, 2AMC Networks, Inc.08/21/2018Price, PO, Judgments1, 2, 4Roku, Inc.12/26/2018Disaggregation1Discovery, Inc.09/12/2018Price, PO, Judgments, Timing6

Disclosure Issues in the Business Services Industry:   

SEC Comment Letters related to disclosures in the Business Services industry focused on performance obligations, timing of satisfaction, and allocation to remaining performance obligations.

CompanyLetter DateTopicComment #Intercloud Systems, Inc.10/23/2018Multiple11Cbiz, Inc.11/08/2018Price Allocation, Contracts1, 4Stamps.Com, Inc.12/11/2018Judgments1Uber02/01/2019Price33Ebay11/27/2018Performance Obligation2HMS Holdings07/27/2018Timing1

Disclosure Issues in the Advertising Industry:

SEC Comment Letters related to disclosures in the Advertising Industry addressed performance obligations and timing of satisfaction.

CompanyLetter DateTopicComment #Interpublic Group of Companies08/24/2018Performance Obligation1Omnicom Group06/12/2018Performance Obligation, Timing2, 5, 6Social Realty, Inc.05/22/2018Multiple1

Disclosure Issues in the Computer Integrated Systems Industry:

SEC Comment Letters on disclosures in the Computer Integrated Systems Industry focus on performance obligations, contracts with customers, and transaction price and allocation.

CompanyLetter DateTopicComment #GoDaddy, Inc.06/14/2018Performance Obligation1Scientific Games Corp10/22/2018Contracts3Allscripts Healthcare Solutions09/26/2018Price1Unisys Corp04/08/2019Contracts, Timing2, 3Parsons Corp04/04/2019Performance Obligation2, 4

Disclosure Issues in the Motor Vehicles/Passenger Car Bodies Industry:

SEC Comment Letters on disclosures in the Motor Vehicles/Passenger Car Industry focused on disaggregation of revenue, performance obligations, and timing of satisfaction.

CompanyLetter DateTopicComment #Ford Motor08/17/2017Disaggregation, Performance Obligation2, 3, 4Wabco Holdings05/11/2018Timing5Nio, Inc.06/22/2018Contract Balance3Paccar, Inc.06/27/2018Disaggregation, Performance Obligation, Timing2, 3General Motors06/12/2018Price1


Once companies have properly carried out accounting procedures for ASC 606, they still have some work to do. The SEC is pushing companies to provide more detail, clarity, and analysis so that users of financial statements can better understand the company’s reasoning behind components of revenue recognition. The changes that companies are making to disclosures are helping financial statement users (who may not fully understand ASC 606) understand the bigger picture of a company’s revenue indications.