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Staff Accounting Bulletins

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Staff Accounting Bulletins

The Staff Accounting Bulletins (SABs) allow the Commission’s staff to make announcements on technical issues with which it is concerned as a result of reviews of SEC filings. The SABs are not formal actions of the Commission; nevertheless, most preparers follow these bulletins because they represent the views of the staff that will be
reviewing their companies’ filings.

Staff Accounting Bulletins Example

An example of a Staff Accounting Bulletin is SAB No. 101, “Revenue Recognition in Financial Statements,” issued in 1999. SAB No. 101 focused on the several revenue recognition procedures the SEC staff found inconsistently applied by registrants. One special item was the discussion of revenue recognition by the “New Economy” Internet firms. These companies focus on revenue growth, and many do not report any positive income. Analysts and stock market investors gauge these companies based on their revenue growth. For example, Company A, an Internet company, may offer another company’s products (Company T) on Company A’s website. Customers place their orders and provide a credit card number to A’s Internet site. Company A then forwards the order to Company T, which ships the goods to the customer. The goods normally cost $200, for which Company A receives $20 for facilitating the sale. The question is this: Can Company A record the $200 gross sale and a $180 cost of goods sold to report its profit of $20, or should Company A record just the net $20 sales commission as its revenue? SAB No. 101 states that the revenue should be reported on the net basis, not the gross basis that the SEC staff believes inflates both the reported revenue and cost of goods sold. As viewed by the SEC staff, Company A did not take title to the goods, did not incur the risks and rewards of ownership of the goods, and was only an agent or broker for Company T for which it received a commission or fee.

The 1933 and 1934 securities acts gave the SEC broad regulatory powers to determine the accounting and reporting standards for publicly traded companies. The SEC has customarily relied on the accounting profession to establish accounting standards through creation and support for a standard-making body, for example, the Accounting Principles Board (APB) and the Financial Accounting Standards Board (FASB). The cooperation between the SEC and the FASB has worked with varying levels of success. The FASB is sensitive to the changes in the business world and attempts to react quickly to them by promulgating new accounting standards when needed. The SEC, however, continues to fulfill its responsibility by issuing releases on subjects that it believes must be addressed.

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