FOR IMMEDIATE RELEASE 99-162 Commission Staff Issues Accounting Bulletin on Revenue Recognition Washington, DC, December 3, 1999 -- The staff of the Securities and Exchange Commission today released Staff Accounting Bulletin (SAB) No. 101, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the Commission. The SAB fulfills a promise that SEC Chairman Arthur Levitt made in September 1998 that the staff would communicate more broadly its views on revenue recognition. Chairman Levitt's remarks were in response to a practice by some registrants to inappropriately manage their earnings by artificially accelerating revenue. Despite the fundamental nature of revenue to every company's business, the accounting rules on revenue recognition are not comprehensive but rather a collection of industry or transaction specific guidelines. This SAB does not change any of the accounting profession's existing rules on revenue recognition. Rather, the SAB draws upon the existing rules and explains how the staff applies those rules, by analogy, to other transactions that the existing rules do not specifically address. This SAB spells out the basic criteria that must be met before registrants can record revenue. Those criteria reflect the recurring revenue recognition themes found in the existing accounting rules. The SAB provides a number of examples of how the staff applies the criteria to specific fact patterns such as bill-and- hold transactions, up-front fees when the seller has significant continuing involvement, long-term service transactions, refundable membership fees, and contingent rental income. The SAB also addresses whether revenue should be presented on a fee or commission basis or at the full transaction amount when the seller is acting as a sales agent or similar capacity. Finally, the SAB provides guidance on the disclosures registrants should make about their revenue recognition policies and the impact of events and trends on revenue. The staff believes that it is appropriate to distribute its views widely so that registrants and their accountants are aware of the staff's views as they prepare financial statements and reports to be filed with the Commission. Lynn Turner, the Commission's Chief Accountant, said, "Recognition of revenue before it is appropriate is a scheme that has cost investors tremendous sums in the past. I hope the additional guidance in this staff accounting bulletin, coupled with more vigilant efforts on the part of financial management and auditors, will significantly reduce the problems in the future. It should also create a level playing field for those who do provide their investors with high quality financial reporting." SABs are not rules or interpretations of the Commission. Rather, they are interpretations and practices followed by staff of the Office of the Chief Accountant and the Division of Corporation Finance in administering the disclosure requirements of the federal securities laws. For further information contact: Richard Rodgers, Scott Taub, or Eric Jacobsen in the Office of the Chief Accountant at (202) 942-4400 or Robert Bayless in the Division of Corporation Finance at (202) 942-2960. # # #