SOX compliance for non-refundable print advertising 2641

  • In working with many publicly-owned newspapers, a particular scenario arises where SOX-compliance is unclear to me. I have heard it stated by different finance managers that revenue for print advertising must be counted on each insertion. So, if an advertiser orders an ad running for 10 days that costs USD100, the revenue must be reported as USD10 per run date rather than as a lump sum of USD100 on the first or last insertion.
    The scenario in question is when this revenue is non-refundable. When this is the case the advertiser can cancel their ad at any point after the first run date and the cost will remain at USD100. To continue to count revenue daily when this is the case creates a dilemma. For example, if an advertiser cancelled such an ad after 5 days then 4 run dates are in the past and, again to be SOX-compliant, there is a need not to modify the revenue originally reported for these days. Therefore the 5th run date must include the remaining balance and report as USD60 instead of the USD10 that would have been reported if the ad had continued running for its full 10 insertions. This seems no more SOX-compliant or meaningful than what I believe is the reasonable alternative for non-refundable ads - count revenue on the first insertion when the cost is non-refundable.
    Given the alternatives (modify revenue for days in the past or count the remaining revenue on the last insertion), is it indeed SOX-compliant to count revenue on the first insertion of non-refundable print advertising? To me, since this is the only way the revenue can be counted accurately and consistently, this is the preferable method.
    A SOX expert answer on this would be most appreciated.

  • You do not need an audit expert, somebody with knowledge of the revenue recognition rules of US GAAP will do. You could also go to the FASB’s codification on the internet and try to check it out yourself.%0AI have worked with IFRS most of the time, which does not have as many detailed revenue recognition rules as US GAAP does.%0ABut my humble understanding of revenue recognition in US GAAP would make me think that you cannot recognize 100% of the non-refundable revenue on the first day based on the contractual terms that you described. Why? The newspaper still has the obligation to run the ad 10 times. Only the customer has the right to cancel the ad, but does not have a right to get the remaining money back. So the newspaper has the obligation to run the ad and incur the printing cost in order to earn the revenue. If the newspaper would violate the obligation and stop printing the rest of the ads for the rest of the days, the customer could go to court and sue the newspaper to fulfill the contract and to run the ads for the rest of the days (or to get the rest of his money back depending on the jurisdiction).

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