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Thursday, October 16, 2014

SEC Provides Relief for Revenue Recognition Disclosures


The SEC recently made life a bit easier for companies that adopt FASB’s new revenue recognition standard, which takes effect in 2017 for public companies. 

The standard mandates retrospective adoption, requiring companies to either fully restate prior years (full retrospective), or record a cumulative catch-up adjustment to the opening balances in the current year (modified retrospective), with enhanced disclosures to explain how previous years would have looked under the new rules. 

SEC Regulation S-K requires companies that adopt a standard retrospectively to restate all five years of the selected financial data in SEC filings, so all follow the same basis of accounting. In September, at a Financial Accounting Standards Advisory Council meeting, an SEC staff member said the SEC wouldn’t object if full retrospective adopters apply the new standard to only the three years covered by audited financials (i.e. 2015, 2016 and 2017), instead of restating all five years of data. Companies must clearly disclose the reporting disparity to investors if they do not restate selected financial data for the earlier years (2013 and 2014).

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