Revenue Recognition (Topic 606) at Salesforce.Com, Inc

22 Pages Posted: 30 Sep 2019 Last revised: 13 Jun 2020

See all articles by Mark E. Haskins

Mark E. Haskins

University of Virginia - Darden School of Business

Luann J. Lynch

University of Virginia - Darden School of Business

Abstract

This case uses an array of carefully selected and excerpted revenue recognition related information contained in Salesforce.com's January 31, 2019, 10-K. Maria, the fictional protagonist, is seeking to understand those disclosures as part of her preparation for an upcoming job interview with the company. As such, she is relying on those disclosures to provide insights as to the company's main product/service lines, the events that signal when and how much revenue the company has earned (i.e., the essence of its business model), along with the related official generally accepted accounting principles (GAAP) criteria pertinent to the valuing and timing of recorded revenues.

Excerpt

UVA-C-2428

Rev. Jun. 5, 2020

Revenue Recognition (Topic 606) at Salesforce.com, Inc.

After her previous review of the revenue recognition information provided by General Dynamics and Ford Motor Company (Ford) in their recent 10-K reports, Maria had become intrigued by the Financial Accounting Standards Board's (FASB's) latest revenue recognition and disclosure requirements. Prior to the FASB's issuance of its comprehensive new revenue recognition guidance and its follow-on official addendums and interpretations (all currently published as Accounting Standard Codification [ASC] 606, and often referred to simply as Topic 606), companies had to consider a myriad of revenue recognition rules, from various sources, with potentially contradictory and/or ambiguous requirements. Moreover, Maria had learned that many, if not most, of the known financial reporting frauds or misstatements in the recent past had pertained to companies' misreporting revenues. In general, those guilty companies had “pushed the envelope” in finding rationales for recording more revenues sooner than they should have. Topic 606 was largely intended to clarify what companies could do in reporting revenues for fiscal years beginning in 2018. One knowledgeable pundit summed up the arrival of Topic 606 onto the contemporary financial reporting scene in a particularly poignant way, stating, “The new accounting rules are considered by many to be the biggest change to accounting standards in the last 100 years. Noncompliance is a huge risk. Revenue recognition errors are the biggest reason for earnings restatements. Earnings restatements can lead to firings, fines, and even jail time.”

The convergence of two desires were motivating Maria to take another look at some examples of the now-in-force revenue recognition practices. First of all, she was interested in companies that operated in the software-as-a-service (SaaS) industry sector. Second, she had an interview with Salesforce.com, Inc., next week, and she wanted to be well prepared. In particular, she had heard it expressed that the revenue recognition practices and related disclosures of a company were an informative window into a company's business model. She wanted to be well-versed on that for her interview. Before heading to San Francisco for her corporate interview, she assembled some important revenue-related information from the company's most recent 10-K, filed with the US Securities and Exchange Commission (SEC) (see Exhibits 1–3).

Maria's Tasks

. . .

Keywords: accounting, GAAP, revenue recognition, disclosures

Suggested Citation

Haskins, Mark E. and Lynch, Luann J., Revenue Recognition (Topic 606) at Salesforce.Com, Inc. Darden Case No. UVA-C-2428, Available at SSRN: https://ssrn.com/abstract=3460755

Mark E. Haskins (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4826 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/haskins.htm

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
7
Abstract Views
390
PlumX Metrics