Topic Thread

F/S disclosures Major Customers Suppliers etc.

  • 1.  F/S disclosures Major Customers Suppliers etc.

    Posted 13 days ago
    I am having trouble finding a threshold (if one even exists) in the literature as to when to disclose major customer sales; supplier purchases and accounts receivable. i.e. >30% of total sales >30% of total accounts receivable

    Does anybody know of any guidance or what has your firm adopted?

    Thanks

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    PerryPalettaCPA
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  • 2.  RE: F/S disclosures Major Customers Suppliers etc.

    Posted 12 days ago
    Good morning Perry,

    This link may be helpful http://www.xavierpaper.com/documents/usgaap/n.Fas30.pdf.  There is a FAS 30 summary on page 4 of the PDF.

    Here is another link from FASB  that refers to revenue derived from government agencies.  http://www.fasb.org/summary/stsum30.shtml. The last paragraph makes reference to customers other than government agencies.

    Here is a KPMG document published in 2016.  https://assets.kpmg.com/content/dam/kpmg/pdf/2016/08/financial-reporting-asx200-operating-segment-disclosures.pdf.  Page 10 of the PDF refers to major customers.

    Gary

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    Gary Topple
    CPA
    GARY TOPPLE, CPA PC
    Jericho NY
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  • 3.  RE: F/S disclosures Major Customers Suppliers etc.

    Posted 11 days ago
    Hi Gary

    Thanks for getting me on the right trail but still no definitive answer. Navigating FASB standards can be a little tricky ;)

    Two of those links were broken but the third indicted 10%. I also searched FASB given your reference to stsum30 and found that the  standard has been superseded by FAS 131 which does not cite a threshold. Then I saw a reference to FASB ASC 275-10-50 which I can't seem to actually locate to read.

    Finally PPC states this in "Preparing Financial Statements" in the risks and uncertainties section. > 30%

    708.49  Revenue from Particular Customers, Grantors, or Contributors
    The authors recommend deciding whether to disclose sources of revenue based on whether management would change operations significantly in response to their loss. For example, if management would eliminate staff positions in response to the loss of a major customer, the reader should be informed; otherwise, disclosure is not helpful. While disclosure depends on the facts and circumstances, the authors believe the following guidelines are helpful:
    • a. If the source comprises at least 30-40% of total revenue, there is a rebuttable presumption that loss of the source would require a significant change in operations:
      • (1) If 40% of revenues are from a large customer serviced through separate, dedicated facilities, one might argue that closing the facilities would not be disruptive. However, it probably would require significant changes in operations, for example, to negotiate lease termination payments and severance arrangements with employees at the facility.
      • (2) If 40% of revenues come from one customer, there is a rebuttable presumption that loss of the customer would cause management to significantly change operations. Nevertheless, if the customer's account has an unusually low margin and the entity's staff and production capacity are already strained, management might not have to change operations at all if it lost the customer. Disclosing the existence of the customer in that instance might unnecessarily alarm readers of the financial statements.
    • b. If the condition in Step a. does not exist, but loss of the source would have a material adverse effect on key operating statistics (such as causing violations of debt covenants or negative cash flows from operating activities), there is a rebuttable presumption that the loss would require a significant change in operations. For example, if a customer comprises 25% of revenues but the entity has only a marginal cash flow from operating activities and has excess capacity, loss of the customer probably would cause management to significantly change operations. This usually will be the case with not-for-profit organizations with large contributors. Even if the contributor funds a special program, eliminating the program usually is disruptive to normal operations. In addition, since potential donors and others might view the organization differently if it eliminated a program, such action often must be taken carefully.
    • c. If neither of the conditions in Steps a. and b. exists, there is a rebuttable presumption that loss of the source would not cause a significant change in operations.
    As a practical matter, the management of most small and medium-sized entities normally can readily assess whether the loss of a source would significantly disrupt their operations.


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    Perry Paletta CPA
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  • 4.  RE: F/S disclosures Major Customers Suppliers etc.

    Posted 12 days ago
    Professional judgement. I don’t think there are specific numbers.
    Best
    Irene

    Wachsler CPA, LLC
    Irene Wachsler, CPA
    781.883.3174
    irene@milliecpa.com
    Sent from my iPhone