To quickly identify ASC 606 information in the below links, click on the link, hit Control + F, enter the text “606”, “2014-09”, or “ASC” and go to your search results.
To quickly identify key areas, open each link and search for “606” or “2014-09” in the text.
This week’s blog focuses on recent examples where companies made revenue recognition errors leading to restatements.
SEC Filings
- BRIDGEPOINT EDUCATION, INC: Form 8-K dated March 6, 2019
Notable takeaways:
- The company identified revenue errors in 2018 and is now potentially going back to 2016 to adjust and restate.
- The company identified that its processes to record revenue for certain performance obligations in its contracts were incorrect. Additionally, it identified issues with the “precision” of its judgements and estimates.
- Additionally, the company stated, “The Company has subsequently identified two material weaknesses in internal control over financial reporting related to 1) control design in the accounting for revenue related to the Full Tuition Grant program and 2) operation of review controls over unusual or non-recurring and significant transactions.”
- SOFTRAX created its flagship Revenue Manager application to prevent these types of situations as it takes the revenue recognition policies and procedures from manual, spreadsheet-driven, environments into a purpose-built application. This application automates these revenue recognition policies and procedures to prevent these situations.
- Additionally, for a company in this position, Revenue Manager can be the tool to quickly get them out of trouble as it will allow them to quickly reprocess data from prior years, compare the results to previously stated results, and clearly restate with differences explained in an auditable format.
- As a side note, a number of shareholder lawsuits are being filed as a result of this situation.
- USA TECHNOLOGIES, INC.: Form 8-K dated February 1, 2019
Notable takeaways:
- The company prematurely recognized revenues going back to 2017. There’s not a lot of color on what led to the issue. With that said, the impact is material.
- This is leading to a back and forth with its former auditor. Additionally, the company has shareholder lawsuits filed against it.
- As mentioned above, SOFTRAX Revenue Manager is a purpose-built application that would have kept the company out of this situation. Additionally, it can get the company out of this situation as well quickly in fully automated and auditable tool.
- Overall, the timing of revenue recognition is controlled by a fully audited, easy to use, secured policy set up in Revenue Manager. So even if a policy is set up incorrectly, thus leading to an issue, it’s easy to identify when and who set it up. Additionally, it allows for easy identification of the affected records and easy bulk processing capabilities to reprocess and correct the numbers. E
Articles
- Accounting Today: Why Accountants Need to be Data Storytellers by Peter Margaritis
Our thoughts: While this article is not specifically about revenue recognition or ASC 606, it offers an important viewpoint that can be leveraged to help companies, and owners of revenue recognition policies, procedures, and results at companies, convey information clearly. It puts forward the notion that accountants need to be “data storytellers” and explains why.
This is relevant to ASC 606 as the standard introduces a need to explain key judgements, disclosures, and overall qualitative information when compared to the prior revenue standard. Having an ability to tell a story that brings a clean, compelling, narrative to a company’s revenue results is now a hard requirement with the advent of ASC 606. This article is worth a read.
We encourage you to visit http://www.softrax.com for information on how SOFTRAX can help your company and you handle ASC 606
