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Revenue recognition: What’s trending · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC.
• 0:08
  SPEAKER_01: Welcome to PWC's Accounting Podcast.
• 0:11
  SPEAKER_01: I'm Heather Horn.
• 0:13
  SPEAKER_01: Thanks so much for joining us today for the next month in our Tuesday series, in which we're bringing in one of our all-star podcast guests to take over the series, picking the topics for the month, and joining me on all the episodes.
• 0:27
  SPEAKER_01: For the month of June, I'm happy to announce that our takeover guest is Angela Ferguson, a partner in PWC's national office who specializes in revenue and compensation.
• 0:38
  SPEAKER_01: Angela's also our standard setting leader, and you'll hear some insights from her this month on one of the FASB's latest projects, software costs.
• 0:48
  SPEAKER_02: And so now the hot topics that we're seeing are really more related to trends in the type of transactions companies are doing, maybe looking at different kinds of business models, or things that companies are doing in reaction to the current economic environment.
• 1:05
  SPEAKER_01: That was Angela kicking us off with insights on a topic every accountant needs to understand: revenue.
• 1:12
  SPEAKER_01: She walks us through recent trends in revenue, including how to think about everything as a service arrangements and the impact of market conditions on revenue contracts.
• 1:22
  SPEAKER_01: From revenue, she then moves on to reporting and what the SEC is asking about and comment letters on revenue.
• 1:28
  SPEAKER_01: Always a popular topic.
• 1:30
  SPEAKER_01: Angela has a lot to cover, so let's get started.
• 1:38
  SPEAKER_01: Angela, welcome for the first of your series of podcasts for the month, and excited to have you back and for our first episode talking about I know what's one of your favorite topics, and it's actually one of the favorite topics of our listeners based on listening statistics, and that would be revenue.
• 1:55
  SPEAKER_01: And in particular, I thought it would be helpful instead of kind of digging deep into the model or doing some of the topics we've done before, just to kind of give an overview of the space and really think about some of the areas where you're getting questions, or maybe where there's confusion or otherwise.
• 2:12
  SPEAKER_01: Or I could put it as you said, it's a hodgepodge of revenue topics.
• 2:17
  SPEAKER_01: But before we get into this group of topics, I thought it might be helpful to say um what we're going to be covering today.
• 2:25
  SPEAKER_02: Sure.
• 2:26
  SPEAKER_02: And I guess just to start, if you can believe it, it's been nine years since ASC 606 was issued.
• 2:34
  SPEAKER_02: It was back in May 2014.
• 2:37
  SPEAKER_02: And so I think we're finally not calling it the new revenue standard anymore, although some people still that still slips out from time to time calling it the new revenue standard.
• 2:47
  SPEAKER_02: So really we're pretty far past the stage of implementation issues, right?
• 2:52
  SPEAKER_02: We talked about that a lot in the past.
• 2:55
  SPEAKER_02: And so now the hot topics that we're seeing are really more related to trends in the type of transactions companies are doing, maybe looking at different kinds of business models, or things that companies are doing in reaction to the current economic environment.
• 3:12
  SPEAKER_02: So even though this is a bit of a hodgepodge, they all kind of come under that common sort of theme.
• 3:18
  SPEAKER_02: So the first topic I'm gonna cover is everything as a service arrangements, which we have talked about before, but in this case I'm gonna specifically talk about embedded leases.
• 3:30
  SPEAKER_02: The second topic is contract modifications, um, but in this case, modifications that reduce the scope of the contract.
• 3:40
  SPEAKER_02: The third topic I'm gonna cover is payments in equity instead of cash between customers and vendors.
• 3:47
  SPEAKER_02: And then last, I have a few reminders on significant financings.
• 3:52
  SPEAKER_02: Now, the topic I didn't say that you might be surprised.
• 3:56
  SPEAKER_02: I didn't say principal versus agent.
• 3:58
  SPEAKER_02: And that doesn't mean it's not a hot topic.
• 4:00
  SPEAKER_02: It's still a very hot topic.
• 4:02
  SPEAKER_02: In fact, we are saving that for its very own podcast that we're also gonna do this month.
• 4:08
  SPEAKER_02: And I'm gonna bring Mike Coleman in to help me with that one.
• 4:10
  SPEAKER_01: Perfect.
• 4:11
  SPEAKER_01: And I know there's many of our listeners that will be wanting to tune in.
• 4:14
  SPEAKER_01: Now, I I noticed with your topics there, there's sort of a trend.
• 4:19
  SPEAKER_01: I would say we've talked a lot about the current economic environment and we're we're getting away from that a little bit, but I think this is bringing it back because some of those topics really do, I think, reflect the environment.
• 4:29
  SPEAKER_01: However, the first one is one of my favorite topics that we've talked about before, and it's this concept of everything as a service.
• 4:37
  SPEAKER_01: And like you said, we did do a specific episode on that.
• 4:41
  SPEAKER_01: But before we talk about the trends, can you just remind people what that even means when we say that?
• 4:46
  SPEAKER_02: So everything as a service, like you said, is it has been around for a while.
• 4:50
  SPEAKER_02: We've talked about it before.
• 4:52
  SPEAKER_02: And it might actually be a phrase that means different things to different people.
• 4:56
  SPEAKER_02: But when I'm referring to everything as a service, it's really the trend that moves away from selling products to customers to a service delivery model.
• 5:07
  SPEAKER_02: And there's a couple of reasons why companies might do this.
• 5:12
  SPEAKER_02: The first reason is from the customer's perspective, they may see customer preferences that instead of wanting to buy something up front, make a capital expenditure, a customer may be more interested in just buying what they need, right?
• 5:28
  SPEAKER_02: That kind of concept.
• 5:29
  SPEAKER_02: The other potential reason for this trend is from the vendor's perspective or the company's perspective, where they might desire to have this recurring revenue stream that you get when you provide a service, right?
• 5:44
  SPEAKER_02: So just to give a couple of examples, one that's very common that most people are familiar with is software as a service or SaaS.
• 5:52
  SPEAKER_02: And this has obviously been around for a while.
• 5:55
  SPEAKER_02: But in a SaaS arrangement, instead of selling the traditional on-premises software that the customer has to host on their own infrastructure, the software in a SaaS is hosted by the vendor or in the cloud, and the customer accesses it remotely.
• 6:12
  SPEAKER_02: So instead of buying software, they're just buying the service.
• 6:16
  SPEAKER_02: But there are many different flavors of this, and we see things like infrastructure as a service or even hardware as a service, which just could simply mean that instead of buying hardware, um, the customer is getting access to the hardware.
• 6:32
  SPEAKER_01: All right, and then one thing I will share that this medium of podcasting in this one case is not as effective, is just how this gets abbreviated, just in case people see this written.
• 6:44
  SPEAKER_01: So it's actually X as a service with the X standing in for everything, and that would be abbreviated X, double A S with the X and S capital and the the A's lowercase.
• 6:56
  SPEAKER_01: And I again I only bring that up because if someone saw that abbreviation, they may not immediately connect it to our conversation here.
• 7:03
  SPEAKER_01: So definitely want people to be able to do that.
• 7:06
  SPEAKER_01: So with that definition given and the background, what are some of the revenue recognition implications that you are seeing in dealing with these arrangements?
• 7:15
  SPEAKER_02: So the recurring issue that comes up that I want to um emphasize on this podcast is that um in these cases, you often need to assess whether there's an embedded lease in the arrangement.
• 7:28
  SPEAKER_02: And this is often missed because the arrangement is thought of more like a service.
• 7:34
  SPEAKER_02: So you're thinking service arrangement.
• 7:36
  SPEAKER_02: And probably the agreement doesn't say anywhere the word lease, but that mean but that doesn't mean there's not an embedded lease in the arrangement.
• 7:45
  SPEAKER_02: So as a reminder, the definition of a lease has two primary components.
• 7:50
  SPEAKER_02: It's an arrangement that requires the use of an identified asset, and the customer controls the use of that asset throughout the period of use.
• 8:01
  SPEAKER_02: So a few examples that where this might apply include things like an arrangement to provide IT outsourcing services, but that involves having some infrastructure hardware that's at the customer's site.
• 8:15
  SPEAKER_02: So you're not actually selling the hardware to the customer, but providing that service uses this specific piece of hardware.
• 8:23
  SPEAKER_02: Another example might be providing a platform where a customer can do order management on the platform, but you're providing a piece of point of sale equipment that is used to access that platform and collect data for these uh order management services.
• 8:43
  SPEAKER_02: So in these cases, I'm not saying that there's always a lease, but you could see the common theme is that there is some asset that is being used as part of the arrangement and it's not being sold to the customer.
• 8:58
  SPEAKER_02: So we need to think about okay, is there an identified asset that the customer has control of during this contract period?
• 9:06
  SPEAKER_01: So, Angela, this may be somewhat obvious because the fact that leasing and revenue have different recognition models, but why is it important to identify the lease?
• 9:19
  SPEAKER_02: Well, it's gonna actually the the extent of how much it impacts the accounting is gonna depend on the type of lease.
• 9:25
  SPEAKER_02: So if it's an operating lease, you may have a similar pattern of revenue recognition for the lease that you would for a service, but it would be presented differently.
• 9:37
  SPEAKER_02: It'd be presented as lease revenue instead of 606 revenue.
• 9:41
  SPEAKER_02: Um, there's also a practical expedient for lessors where they can combine a lease component with a non-lease component, like a service, but that can only be used in if there's certain criteria that are met.
• 9:58
  SPEAKER_02: And there needs to be the same pattern of recognition.
• 10:04
  SPEAKER_02: So operating lease, service over time, you know, that would work.
• 10:08
  SPEAKER_02: But you also have to conclude that the service component is predominant to sort of roll all of this into a 606 arrangement.
• 10:16
  SPEAKER_02: On the other hand, if it's not an operating lease, you know, it's a sales type lease, you're going to have a very different pattern of recognition because you're probably going to have some sort of upfront profit or loss for the sales type lease, and instead of just an overtime recurring revenue stream that you would for a pure service arrangement.
• 10:36
  SPEAKER_01: And then Angela, this is off topic from revenue recognition, but is it fair to say this is also important for the customer to understand the pieces of what it's receiving?
• 10:50
  SPEAKER_02: Um yeah, absolutely.
• 10:51
  SPEAKER_02: The customer would also need to think about whether there's a lease in the arrangement.
• 10:55
  SPEAKER_01: All right, well, we won't cover that here, but when you said lasour, it kind of triggered with me, well, the lessee needs to think about this too.
• 11:01
  SPEAKER_01: So and then Angela, if we're not, if you go through your the framework and conclude that there is not a lease, are is there still some accounting that you need to think about?
• 11:12
  SPEAKER_02: Well, in these arrangements, I think you know, you also just need to think through like what are all of the goods and services that are being provided.
• 11:20
  SPEAKER_02: I mean, sometimes I think it's easy to oversimplify and think, oh, I'm just providing a service.
• 11:25
  SPEAKER_02: But when you sort of look at all the different components, there may be a software component, there may be a hardware component where you're actually selling a piece of hardware.
• 11:33
  SPEAKER_02: And so you do need to think about all those different components and whether they're distinct.
• 11:38
  SPEAKER_02: So it may not be as simple as a single recurring, you know, overtime revenue recognition model if you have these different distinct components.
• 11:48
  SPEAKER_01: All right, that's definitely helpful.
• 11:50
  SPEAKER_01: And I know there's quite a bit more to this topic.
• 11:53
  SPEAKER_01: We just kind of hit the highlights.
• 11:55
  SPEAKER_01: So before we go on to our next one, if someone is so intrigued that they want to learn more, where should they go for more information?
• 12:02
  SPEAKER_02: So we have a lot out there on embedded leases.
• 12:04
  SPEAKER_02: I mean, you can look in our leasing guide in chapter two.
• 12:08
  SPEAKER_02: And we also had a podcast on spotting embedded leases as part of our leasing toolkit about a year ago, right?
• 12:15
  SPEAKER_02: So I would recommend um going back to that podcast.
• 12:19
  SPEAKER_02: And for identifying just the performance obligations or goods and services in a revenue contract, you can look at chapter three of our revenue guide for more information on that.
• 12:29
  SPEAKER_01: Well, and I think fair to say, not specific to this topic, but we did do a podcast on everything as a service as well that people can look for.
• 12:37
  SPEAKER_01: So that's right.
• 12:38
  SPEAKER_01: All right.
• 12:38
  SPEAKER_01: So then let's move on to the next topic.
• 12:40
  SPEAKER_01: And and this one uh I kind of put in this category of sort of current economic environment because of the angle I know that you're planning to talk about.
• 12:50
  SPEAKER_01: And that would be on contract modifications.
• 12:53
  SPEAKER_01: So, what are you seeing in this area?
• 12:55
  SPEAKER_02: So typically when we're thinking about contract modifications, people think about adding new things to the contract or expanding the scope of the contract.
• 13:05
  SPEAKER_02: But more of the questions I've been getting lately involve modifying a contract to reduce the scope of the contract.
• 13:13
  SPEAKER_02: So, an example could be a contract that was originally a five-year non-councilable service contract.
• 13:21
  SPEAKER_02: But once you're, say, two years in, the parties agree to modify that contract to reduce the total term by two years.
• 13:30
  SPEAKER_02: So instead of having three more years, you only have one more year of the contract.
• 13:35
  SPEAKER_02: And one reason why companies might be doing this is they're looking at ways to reduce costs and they might decide that they want to try to get out of a contract that they were originally locked into for a long term.
• 13:48
  SPEAKER_01: So in this scenario where you modify your contracts, reduce uh it, what are some of the accounting implications that you should think about?
• 13:57
  SPEAKER_02: So even though you're reducing the scope of the contract, you're still applying the same modification framework.
• 14:05
  SPEAKER_02: Um, and in this case, because you're not adding goods and services, there's two possible models or scenarios that could apply.
• 14:14
  SPEAKER_02: The first situation is when the remaining goods and services in the contract are distinct from the prior performance.
• 14:22
  SPEAKER_02: So this is probably the more common situation, and it's very typical for service arrangements because the service that you apply that you're providing after the modification is distinct from the services that you were providing before.
• 14:36
  SPEAKER_02: So in this scenario, the accounting is done on a prospective basis.
• 14:42
  SPEAKER_02: So any unrecognized remaining transaction price, and it might be a reduced transaction price, is going to be allocated to the remaining goods and services.
• 14:52
  SPEAKER_02: So I would say spread over as a simplistic way of saying it, but spread over the remaining contract period.
• 15:00
  SPEAKER_02: The other possibility is if the remaining goods and services are not distinct from past performance, and this is usually when you have a single performance obligation that's being modified.
• 15:12
  SPEAKER_02: So think about maybe a construction project that's one big performance obligation and you're reducing the scope of the project.
• 15:20
  SPEAKER_02: In that case, the modification is done on a cumulative catch-up basis.
• 15:25
  SPEAKER_02: So the other piece of this is that often when we are, will we see companies agreeing to reduce the scope of the contract, they're not just doing that out of the goodness of their heart, right?
• 15:36
  SPEAKER_02: But the customer is paying some sort of termination penalty in order to do that.
• 15:41
  SPEAKER_02: And I think a misconception is that, oh, if the if I'm getting a termination penalty, I should recognize that immediately.
• 15:49
  SPEAKER_02: But in this case, because the contract is not completely canceled, right, there's still a remaining portion of the contract to complete, or I guess we call it a partial termination, that typically that termination penalty would just be included in the remaining transaction price that's being allocated to the remaining goods or services.
• 16:10
  SPEAKER_02: And this can be a bit of a surprise when uh companies find out that that's that's the the appropriate accounting.
• 16:16
  SPEAKER_01: So this may be way too complicated to answer here, but the immediate thing that came to my mind when you said that is that, okay, well, so then I should just terminate my original contract and enter into a new contract for that additional term.
• 16:31
  SPEAKER_01: So if you do that, do you wind up with two or it's it depends?
• 16:35
  SPEAKER_01: Are you gonna tell me?
• 16:36
  SPEAKER_02: Well, no, I you know, that's trying to have form to take precedence over substance, but no, we would look at the substance of the situation and still treat that as a modification.
• 16:47
  SPEAKER_02: So I mean you could you wouldn't get a different answer just by how you you can do.
• 16:50
  SPEAKER_02: Like paper the contract.
• 16:52
  SPEAKER_01: Exactly.
• 16:53
  SPEAKER_01: It's an excellent answer.
• 16:54
  SPEAKER_01: So all right.
• 16:56
  SPEAKER_01: I know you mentioned at the beginning of this that this actually follows the the broader model for contract modifications, which is interesting because again, I think the the way we framed these conversations for the past nine years, as you you mentioned, the the duration of 606 has been expansion.
• 17:15
  SPEAKER_01: But so where would you go look to understand more about that model?
• 17:18
  SPEAKER_02: Yeah, we go through the model in chapter two of our revenue guide.
• 17:22
  SPEAKER_02: Um, and again, like you're right, a lot of most of our examples are assuming you're expanding the scope, but it is really the same model, whether you're expanding or reducing the scope.
• 17:31
  SPEAKER_01: Okay, very helpful.
• 17:32
  SPEAKER_01: So then let's go on to the next one, which intrigued me because I do think it's an interesting scenario to talk about, which is that you said that you're seeing more cases where you're seeing payments in equity uh in addition to cash or just in equity instead of cash.
• 17:50
  SPEAKER_01: So, what are some examples of what you're seeing?
• 17:53
  SPEAKER_02: Yeah, and I wouldn't say it's necessarily um, you know, super common yet, but we are seeing more cases where this is coming up.
• 18:01
  SPEAKER_02: And it might be a customer who's paying for goods or services with shares or warrants, or a vendor is trying to incentivize a customer to enter into a, you know, like a long-term contract or a supply contract and might give them shares or warrants.
• 18:19
  SPEAKER_02: I mean, and I'm sure the reasons for this, they're you know, all over the board, right?
• 18:23
  SPEAKER_02: There might be many reasons why a company might want to do this.
• 18:26
  SPEAKER_02: It may just be that a company doesn't want to use cash at the moment, so they would rather use equity to make some of these payments.
• 18:33
  SPEAKER_02: So there may be, you know, various reasons why we're seeing this trend.
• 18:36
  SPEAKER_01: So, Angela, just to clarify then, and you said this, but I just want to make sure.
• 18:40
  SPEAKER_01: So, this actually can go either way.
• 18:42
  SPEAKER_01: Right.
• 18:42
  SPEAKER_01: That could be the vendor giving to the customer or the customer giving to the vendor.
• 18:47
  SPEAKER_01: So, definitely curious, what does that mean from an accounting uh model point of view?
• 18:53
  SPEAKER_01: Right.
• 18:53
  SPEAKER_02: And it you know, along those lines, it depends on whether you are the one issuing the equity or are you the one receiving the equity?
• 19:02
  SPEAKER_02: So I'll start with the issuer of the equity.
• 19:06
  SPEAKER_02: And if you haven't dealt with this before, um, actually the accounting guidance in this area changed not that many years ago.
• 19:14
  SPEAKER_02: So I think some people may not be as familiar.
• 19:16
  SPEAKER_02: Um, and in this case, the model is now all under ASC 718, stock-based compensation.
• 19:24
  SPEAKER_02: So it all follows the same model as equity given to employees.
• 19:30
  SPEAKER_02: So this has all been aligned now.
• 19:32
  SPEAKER_02: So even if you're issuing equity to a customer or to a vendor, you're gonna apply the same sort of overall model that you would when you issue equity to employees.
• 19:44
  SPEAKER_02: So what does that mean?
• 19:45
  SPEAKER_02: That means you're measuring at fair value on the grant date.
• 19:49
  SPEAKER_02: And for things like performance conditions or market conditions, you're gonna apply the same guidance that you would for an employee award.
• 19:58
  SPEAKER_02: Now for recognition, you're going to the overall principle is that recognition is going to be the same as if you paid cash to the counterparty.
• 20:09
  SPEAKER_02: So if you're giving equity to a customer, you would sort of think of the timing similar to how you would think of cash payments to customers.
• 20:18
  SPEAKER_02: And as you probably remember, if you're giving a cash payment to a customer, it's a reduction of revenue, unless it's in exchange for a distinct good or service.
• 20:26
  SPEAKER_02: And so it effectively becomes a discount on the revenue transaction.
• 20:32
  SPEAKER_02: If you're giving equity to a vendor, again, you're going to think of that similar to as if you gave cash to the vendor.
• 20:39
  SPEAKER_02: And so your expense recognition or if you recognize an asset would be the same as if you had given them cash.
• 20:47
  SPEAKER_01: So then how about though the scenario where you're receiving equity?
• 20:52
  SPEAKER_02: So if you're receiving equity from a customer, then you're going to follow the non-cash consideration model in ASC 606.
• 21:01
  SPEAKER_02: So under that model, the equity is measured at fair value at contract inception, and that's going to determine the amount of revenue from the arrangement.
• 21:13
  SPEAKER_02: After that, subsequent changes in the value of the equity aren't going to impact how much revenue you recognize from the arrangement.
• 21:21
  SPEAKER_02: So because in that case, the equity instrument itself that you're receiving is going to be accounted for under the other applicable guidance for financial instruments.
• 21:31
  SPEAKER_01: It's interesting, Angela, because I guess when you had originally framed this, I wasn't thinking that it was something in the contract, but it was more so like, oh, the customer owes the vendor money and they say, Oh, decides to settle that in equity.
• 21:46
  SPEAKER_01: By the way, will you take equity instead?
• 21:49
  SPEAKER_01: But you're seeing more typically, at least, you're seeing this as like contemplated in the arrangement.
• 21:54
  SPEAKER_01: I presume the other situations can exist, but yeah, that's right.
• 21:57
  SPEAKER_02: I think it's usually going to be written in.
• 22:00
  SPEAKER_02: To the agreement that it's going to be payment inequity, either in addition to cash or instead of cash.
• 22:05
  SPEAKER_01: Yeah.
• 22:06
  SPEAKER_01: And I guess that also makes sense because if you're the vendor and your customers start saying, hey, can you take equity instead?
• 22:12
  SPEAKER_01: May raise other questions if it was sort of an ad hoc basis.
• 22:16
  SPEAKER_02: So but I mean, really, these arrangements, we've seen them get quite complex as far as the maybe some vesting terms that are added to the equity, as well as like the timing can matter.
• 22:28
  SPEAKER_02: So if you're you're performing now, but you're going to get equity later, it just could start to get very complex.
• 22:35
  SPEAKER_02: So it's something that you certainly want to get in front of, work through the accounting implications and maybe even when they're getting structured.
• 22:42
  SPEAKER_01: And to that point, then on this topic, where would you go for more?
• 22:47
  SPEAKER_02: So we talk about equity issued to customers or vendors in our stock-based compensation guide, and that's in chapter seven.
• 22:55
  SPEAKER_02: And then if you're on the receiving end, um, we cover non-cash consideration in chapter four of our revenue guide.
• 23:03
  SPEAKER_01: Excellent.
• 23:04
  SPEAKER_01: So then you had one more topic, and this one also I was found intriguing because I don't think it's one we've ever talked about before.
• 23:12
  SPEAKER_01: And that would be significant financing.
• 23:14
  SPEAKER_01: So what do you mean when you say that?
• 23:16
  SPEAKER_01: And what's sort of the fact pattern we're seeing?
• 23:19
  SPEAKER_02: Yeah, and this one um I'll probably hit pretty quickly because it's more of like a heads up or a reminder as opposed to like a maybe a true trend just yet.
• 23:28
  SPEAKER_02: Uh, but just a level set.
• 23:30
  SPEAKER_02: Um, the revenue standard does require splitting out and separately accounting for a significant financing component of a revenue transaction.
• 23:40
  SPEAKER_02: And this is generally when there's a timing difference between when the vendor performs and when they receive payment.
• 23:49
  SPEAKER_02: So I guess an easy example is you deliver a good up front and the customer is paying over time.
• 23:57
  SPEAKER_02: And there's also a practical expedient that if the timing difference is one year or less, you don't have to account for the significant financing.
• 24:06
  SPEAKER_02: But if it's that that timing difference is more than a year, then you do need to evaluate whether you need to separately account for the financing.
• 24:14
  SPEAKER_02: So in the example I gave, if there's a financing, then the amount of revenue you are recognizing is lower because then you would also have interest income in addition to the revenue.
• 24:27
  SPEAKER_01: All right.
• 24:28
  SPEAKER_01: And I guess this is much more important now because we're seeing much higher interest rates.
• 24:34
  SPEAKER_02: That's right.
• 24:35
  SPEAKER_02: So I you you said we didn't haven't necessarily talked about this that much before, and that's because it really wasn't a hot topic when 606 first came out.
• 24:44
  SPEAKER_02: And there were many reasons why people were able to argue there was not a significant financing in the arrangement.
• 24:51
  SPEAKER_02: And perhaps one reason is that you know, word significant, like even if there is a financing, if it's not significant, you don't have to separately account for it.
• 25:01
  SPEAKER_02: And in some cases, that might have been based on the fact that interest rates were very low.
• 25:06
  SPEAKER_02: Um, so perhaps the you know, quantitatively the impact of the financing was not significant.
• 25:12
  SPEAKER_02: Um, so here the you know reminder, heads up is hey, interest rates are a lot higher now.
• 25:18
  SPEAKER_02: So that assumption, you know, may not continue to hold true.
• 25:22
  SPEAKER_02: So something that may need to be revisited.
• 25:24
  SPEAKER_02: And then I would also say we are just starting to see more terms being structured in arrangements that seem to be allowing for managing cash flow or you know, really providing a form of financing to either the vendor or the customer.
• 25:41
  SPEAKER_02: So I think this is something that we're gonna see more going forward.
• 25:45
  SPEAKER_02: Um, so something that you may need to brush up on if it comes up and um you know get into the impacts and get ahead of that one as well.
• 25:53
  SPEAKER_01: All right, that's definitely helpful.
• 25:55
  SPEAKER_01: And on this one, where would you go for more information?
• 25:59
  SPEAKER_01: We cover significant financings in chapter four of our revenue guide.
• 26:03
  SPEAKER_01: All right, and then Angela, I know this wasn't on your list, but I'd be remiss if I let you leave without saying talking about any new comment letter trends or other sort of trends in disclosure that listeners should be focused on.
• 26:16
  SPEAKER_02: Yeah, so uh we did a podcast on revenue comment trends that last fall.
• 26:22
  SPEAKER_02: Yeah, November.
• 26:23
  SPEAKER_02: Yes.
• 26:24
  SPEAKER_02: So I I mentioned this then, but uh, we are continuing to see uh a focus on disaggregated revenue disclosures.
• 26:32
  SPEAKER_02: So I'd say that that is still continuing to be an area of focus of um the SEC staff and their comment letters.
• 26:39
  SPEAKER_02: So something you really want to pay attention to.
• 26:42
  SPEAKER_02: And one thing I'm seeing the SEC staff ask about is you know, they'll listen to earnings calls or look at investor presentations, and if there's information being provided in those forums, like for example, maybe trends on different end markets or different industries you're selling to, or different product types, then they'll compare that against the disaggregated revenue footnote.
• 27:09
  SPEAKER_02: And if you know that is not included, like you're not showing disaggregation by end market or you're not showing by product type, you know, they will ask about that.
• 27:18
  SPEAKER_02: Because if you're if you're giving that information in these other forums, then that might imply, you know, that's important information for users.
• 27:26
  SPEAKER_02: And so that would be one reason why you should be putting it in your disaggregated revenue disclosure.
• 27:31
  SPEAKER_01: So then, Angela, as you kind of look across these topics and even more holistically on broadly revenue questions that you're answering right now, any general words wisdom for listeners as they're thinking about issues in this area?
• 27:47
  SPEAKER_02: Well, you know, I mentioned before that we are kind of past the implementation phase of 606.
• 27:52
  SPEAKER_02: So some things may be a little bit on autopilot, but what you want to watch out for are these changes in business models, you know, modifications to contracts, changes in the types of terms you're putting into contracts.
• 28:07
  SPEAKER_02: Make sure you're getting in front of those as early as possible, understanding the implications so there aren't any like last-minute surprises when you work through the accounting of that type of arrangement.
• 28:17
  SPEAKER_01: All right, definitely a good reminder.
• 28:19
  SPEAKER_01: And all of these topics I think are great to be highlighting to listeners right now.
• 28:24
  SPEAKER_01: So such a pleasure to have you on.
• 28:26
  SPEAKER_01: Thanks so much for joining me.
• 28:27
  SPEAKER_02: Happy to be here.
• 28:29
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• 28:31
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• 28:51
  SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
• 28:55
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