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Starbucks to provide additional revenue disclosures after SEC inquiry

Starbucks Corp. agreed to offer additional disclosures about how it recognizes revenue after the U.S. Securities and Exchange Commission sought clarification on the coffee giant's accounting practices, The Wall Street Journal reported Sept. 10.

The coffee giant, among many other companies, is adjusting to new accounting guidelines that aim to standardize revenue recognition practices.

The SEC sent letters to Starbucks seeking clarification on how the company recognized revenue in its second quarter earnings. The regulator sought clarity on why the company recognized pre-opening services, such as reviewing architectural plans and training employees, upon completion of the services.

The SEC also asked Starbucks about its licensing agreement with Nestle, which saw the Swiss giant make a $7 billion up-front cash payment in 2018 for perpetual rights to market Starbucks products.

A change in accounting policies related to gift cards made it harder for the SEC to discern the amount of deferred revenue allocated to the Nestle deal, the report added. The SEC wrote to Starbucks in 2015, questioning its approach for gift cards and loyalty points redeemed at licensed stores, the report noted, citing records.

In response, Starbucks said it will expand its disclosures to clarify the new revenue-recognition standard’s impact on financial line items.

The SEC, according to the Journal, sent a final letter to Starbucks on Aug. 8 noting that the matter has been resolved.

At least 208 companies received letters from the SEC about their revenue-recognition practices in 2018, the Journal added, citing an analysis by Audit Analytics.

Starbucks did not immediately respond to S&P Global Market Intelligence's request for comment.

Starbucks shares fell Sept. 4 after the company gave a weak outlook for fiscal 2020.