SEC Pushes Adobe to Expand Disclosures Under New Accounting Rules
July 03 2019 - 5:16PM
Dow Jones News
By Mark Maurer
The Securities and Exchange Commission's queries to Adobe Inc.
on how it is implementing the new revenue accounting standard shows
the regulator's efforts to push companies into revealing more about
how they are complying with the new rules.
The San Jose, Calif.-based software company is the latest U.S.
firm to grapple with the new accounting guidelines, which came into
effect at the start of last year for most public companies and aim
to unify how companies from different industries account for
revenue from sales and services. Adobe was one of the later
adopters of the new standard because its fiscal year ended on Nov.
30. Adobe implemented the rule on Dec. 1 for the first quarter of
the 2019 fiscal year.
The SEC, in letters sent this spring as part of a routine
review, has questioned Adobe on why in its first-quarter earnings
filings it combined the reporting of revenue from its software
licensing and cloud services into a single performance obligation,
instead of accounting them separately.
Adobe, in its response, said its Creative Cloud and Document
Cloud program's cloud-based features, functionalities and software
licenses constitute a single performance obligation that should be
recognized over a customer's subscription period.
After some back-and-forth, the SEC agreed with Adobe's logic but
asked the company to include additional disclosure in all future
periodic filings that the software licenses and cloud services for
those two Cloud programs are entwined.
The correspondence illuminates the level of detail and effort
that executives have to expend to comply with the new accounting
standard, said Matthew Kaplan, a securities attorney at law firm
Debevoise & Plimpton.
The involvement of the company's auditors in fielding the SEC's
questions shows how all parties involved with preparing financial
statements continue to grapple with the new revenue rules. Adobe's
thorough and nuanced responses can serve as guidance to other
companies in similar situations, Mr. Kaplan said.
The SEC judged the matter resolved without further action,
according to a letter the regulator sent to the company June 4. The
documents were made public Tuesday.
About 50 companies have exchanged letters with the SEC over the
separation of performance obligations in the new standard since
2017, seven of which were software companies such as Microsoft
Corp. and Autodesk Inc., according to consulting firm Audit
Analytics.
"It doesn't seem SEC has required anyone to change their
accounting, but instead required them to disclose the changes more
comprehensively," said Derryck Coleman, an analyst at Audit
Analytics.
Both the SEC and Adobe declined to comment.
Adobe, founded in 1982, made its largest purchase to-date last
year with the $4.75 billion acquisition of marketing-software
manager Marketo. The company posted better-than-expected
second-quarter earnings last month with revenue of $2.74 billion, a
25% increase from a year earlier.
Write to Mark Maurer at Mark.Maurer@wsj.com
(END) Dow Jones Newswires
July 03, 2019 17:01 ET (21:01 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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