September 4, 2008 - In recent years the SEC Staff Members (the “Staff”) in the Division of Corporation Finance have commented that registrants’ financial statements must include more complete and precise disclosure of accounting policies as they relate to revenue recognition.  According to the Staff, revenue recognition disclosures should include the registrants’ source(s) of revenues, method of accounting for revenues, and material considerations in evaluating the quality and uncertainties surrounding their revenue generating activity.

Revenue recognition disclosures should be presented in the notes to the financial statements or in the MD&A, as appropriate.  For example, descriptive information about the effects of variations in revenue generating activities and practices, or changes in the magnitude of specific uncertainties would be most appropriate in the MD&A as opposed to the notes to the financial statements.

Examples of what revenue recognition disclosures may include are as follows:

1.       Disaggregate product and service information

2.       Timing of revenue recognition

3.       Material assumptions, estimates and uncertainties

4.       How the period’s revenue is measured (e.g. percentage of completion, proportional performance, or contract milestones)

Lastly, the Staff notes that revenue recognition disclosures should be transparent, concise, to the point and in “plain English” so that the average reader can understand.  Simply stated, more disclosure does not necessarily constitute better disclosure.

For more information, please contact Joe Canataro at 215-564-1900.

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