Qualcomm Inc. (QCOM)
Analysis of Revenues
High level of difficulty
Accounting Policy on Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to revenue recognition (ASC 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition accounting guidance and requires increased disclosures. The new accounting guidance defines a five-step approach that requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. Qualcomm adopted ASC 606 in the first quarter of fiscal 2019 using the modified retrospective transition method only to those contracts that were not completed as of October 1, 2018. Qualcomm recognized the cumulative effect of initially applying the new revenue accounting guidance as an adjustment to opening retained earnings. Prior period results have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods (ASC 605). Qualcomm has implemented new accounting policies, systems, processes and internal controls necessary to support the requirements of ASC 606.
Adoption of this new accounting guidance most significantly impacts the timing of sales-based royalty revenues, which are the vast majority of Qualcomm’s QTL segment’s revenues. Prior to adoption, Qualcomm recognized sales-based royalties as revenues in the period in which such royalties were reported by licensees, which was after the conclusion of the quarter in which the licensees’ sales occurred and when all other revenue recognition criteria had been met. Under the new accounting guidance, Qualcomm estimates and recognizes sales-based royalties in the period in which the associated sales occur, subject to certain constraints on the ability to estimate such amounts, resulting in an acceleration of revenue recognition compared to the historical method under ASC 605. Since Qualcomm does not invoice for sales-based royalties estimated and recognized in any given quarter until after the conclusion of that quarter (which is generally the following quarter when such royalties are reported by licensees), revenues recognized from sales-based royalties results in unbilled receivables (included in accounts receivable, net on the consolidated balance sheet). The adoption of ASC 606 did not otherwise have a material impact.
The new accounting guidance also impacts the timing of recognizing certain customer incentives, which are recorded as a reduction to revenues in the period that the related revenues are earned. Prior to adoption, Qualcomm accounted for certain customer incentive arrangements, including volume-related and other pricing rebates or cost reimbursements for marketing and other activities involving certain of the products and technologies, in part based on the maximum potential liability. Under the new accounting guidance, Qualcomm estimates the amount of all customer incentives.
Source: 10-K (filing date: 2019-11-06).
Revenues as Reported
Qualcomm Inc., Income Statement, Revenues
US$ in millions
Based on: 10-K (filing date: 2019-11-06), 10-K (filing date: 2018-11-07), 10-K (filing date: 2017-11-01), 10-K (filing date: 2016-11-02), 10-K (filing date: 2015-11-04), 10-K (filing date: 2014-11-05).
|Revenues||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Qualcomm Inc.’s revenues increased from 2017 to 2018 and from 2018 to 2019.|