Adoption of ASC Topic 606, Changes & Effects Assigment

Adoption of ASC Topic 606, Changes & Effects Assigment

In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which added Topic 606 to the FASB’s Accounting Standards Codification (ASC) and will replace most pre-existing revenue recognition guidance in legacy GAAP with a new framework that consists of a five-step model for addressing how an entity should account for its revenue. The new guidance became effective for public entities for fiscal periods that began after December 15, 2017. Some companies adopted the new revenue standard before the official effective date.

The adoption of the new revenue recognition guidance represented one of the most costly financial reporting endeavors for U.S. corporations. Following SEC Staff Accounting Bulletin No. 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period, companies are required to disclose both quantitative and qualitative information about the expected impact of adopting new accounting standards in interim or annual SEC filings, in preparation for the actual adoption. The SEC’s Division of Corporation Finance, in their reviews of corporate filings, may send comment letters to companies, and companies generally respond to comments in a letter and, if appropriate, by amending its filings.

In this case memo, you should first locate the SAB 74 disclosures on ASC 606 for your assigned company and the interim and annual filings since the company adopted ASC 606. You should also locate, if any, SEC comment letters and company responses related to the new revenue recognition guidance. You should address the following questions in your memo using these disclosures and any other source of information you can find.

Using information about the first earning announcement after adopting ASC 606, the related 10-Q filing, and the 10-K filing from the year immediately prior to the adoption of ASC 606, address the following: (COMPANY: Ford Motor)(…)

  1. Using stock price data from Yahoo! Finance to calculate the 3-day (t-1 to t+1) cumulative return.
  2. Calculate percentage changes in sales revenue, net income, and diluted earnings per share from the same period the previous year, using both numbers as reported in the previous year and as restated.
  3. Calculate the ratio of deferred revenues to total current liabilities using the reported balances from the 10-Q and the previous 10-K.
  4. Describe the key areas where ASC 606 is causing changes. How do these actual effects compare to the information provided in the SAB 74 disclosures?
  5. Among the five steps in the new revenue model, which steps have relatively the most significant impact on the company’s revenues? Explain.
  6. Is there any indication that the company has adapted the way it conducts business or intends to do so in response to the new revenue recognition guidance? Explain.