Teaming with Tony: What there is to learn about implementing ASC 606—Backlog disclosures

Setting the stage

In the September 2017 volume of The Analyst’s Accounting Observer, R.G. Associates surveyed 391 S&P 500 firms’ 10-Q disclosures with December and January year ends to understand the effects of the new revenue recognition standard to publicly traded firms. Based on the disclosures reviewed, only 7 (1.8%) companies have explicitly stated that implementing ASC 606 will have a material impact, while the rest have an expectation of no material impact or remained mum on the impact as of their Q2’17 financial disclosures.

implementing ASC 606

While there may be a growing sentiment that ASC 606 will have less of an impact on consolidated financial outputs amongst finance organizations, everyone is still facing implementation pains from a process, product, and disclosure perspective. On December 5, 2017, CallidusCloud teamed up with Tony Sondhi, President, A.C. Sondhi & Associates, LLC, to discuss the latter pain point for companies when implementing ASC 606—specifically, backlog.

Five major disclosures

There are five major post-adoption disclosure areas that revolve around disaggregated revenue, reconciliation of contract balances, qualification of performance obligations, disclosure of significant assumptions, and qualifications to complete a contract. The goals of these new disclosures are to enable users of financial statements to gain greater clarity around the nature, timing, amount, and uncertainty of revenue and cash flows from contracts within the scope of ASC 606. Of the required new disclosures, remaining performance obligations (i.e. often referred to as “backlog”) is highly considered the largest change, as there has historically been no consistent reporting on the application of this metric.

Highlighting the differences

In our webinar, we highlighted differences between historical SEC backlog disclosures and what is required under the new guidance. For example, the ASC 606 backlog disclosure is based on valid, existing contracts, while historically, companies have also included “firm” contracts that may have a high likelihood of becoming legally enforceable but may not have crossed that threshold. We also discussed practical expedients and contracts entities that are not required to be disclosed, such as those with duration of one year or less and variable consideration in usage-based royalties promised in exchange for a license of IP. And we reviewed early adopter financial statement disclosures around backlog for real life references. Overall, the webinar was an amazing learning experience to discuss implementing ASC 606 and disclosure impacts in depth. All who attended and answered polling questions received CPE credits.

Revisit the webinar.

By David Williams | December 13th, 2017 | RevSym

About the Author: David Williams

David Williams

David is a Senior Revenue Manager at CallidusCloud in Dublin, CA with a focus on 606 policy and technology implementation, FP&A, and RevSym Sales. He has seven years of audit and M&A experience in the software/technology industry.