{ "docId": "019dd923-622c-750b-8b96-7f2e60571091", "docSlug": "9e3d3c9dc613", "documentTitle": "Nidec Corp. (6594 JP)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2016-12-13 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 25, "pageCount": 54, "prevPage": 24, "nextPage": 26, "slideType": "appendix_disclosure", "function": "expose_contradiction", "density": "dense", "nDataPoints": 0, "notes": "Includes extensive footnotes referencing SEC filings and accounting standards.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-7f2e60571091/25", "deckHref": "/decks/019dd923-622c-750b-8b96-7f2e60571091", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-7f2e60571091.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-7f2e60571091#slide-25", "components": [ { "bbox": null, "kind": "callout", "text": "While Nidec’s revenue recognition policy could suffice for more developed markets, in China there is a non-negligible possibility that employees would exploit the lack of necessary acceptance to stuff channels.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-203f-7169-9f8b-db72bfce2f1b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.54 }, "kind": "paragraph", "text": "U.S. GAAP provides that revenue should not be recognized until acceptance occurs. As was explained, customers are not obligated to pay for goods in safety stock, and thus they have not been accepted.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "414e54ae-a62f-4f8d-943e-5b487ea2b1c4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.32, "w": 0.78, "x": 0.11, "y": 0.21 }, "kind": "paragraph", "text": "Nidec recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. For small precision motors, automotive, appliance, commercial and industrial products and electronic and optical components, these criteria are generally met at the time a product is delivered to the customers' site which is the time the customer has taken title to the product and the risk and rewards of ownership have been substantively transferred. These conditions are met at the time of delivery to customers in domestic sales (FOB destination) and at the time of shipment for export sales (FOB shipping point). Revenue for machinery sales is recognized upon receipt of final customer acceptance. At the time the related revenue is recognized, Nidec makes provisions for estimated product returns. Revenue from a part of sales of automotive, appliance, commercial and industrial products under long-term construction type arrangements are recognized under the percentage-of-completion method. Under the percentage-of-completion method, revenue is recognized as a percentage of estimated total revenue that incurred costs to date bear to estimated total costs after giving effect to estimates of costs to complete based upon the most recent information.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "483a11b2-e148-4f4b-a440-2587dad91c7b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.8 }, "kind": "paragraph", "text": "The revenue recognition policies for Chinese auto parts manufacturers Wanxiang Qianchao Co Ltd. (000559 CH) and Weifu High-Technology Group (000581 CH) seemingly make it harder to stuff channels in the manner that the former Nidec employees have alleged.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "56df270e-d467-4dd9-9bc6-09cc26269c98", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "system, which means buyers usually only acknowledge an obligation to pay once the goods have been used in their production. While Nidec's revenue recognition policy could suffice for more developed markets, in China there is a non-negligible possibility that employees would exploit the lack of necessary acceptance to stuff channels. Below is a comparison of Nidec's revenue recognition policy to those of two PRC-listed automotive suppliers.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c10f4a01-01f1-410d-a89c-aa8a884443ba", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.61 }, "kind": "paragraph", "text": "b. Customer acceptance. After delivery of a product or performance of a service, if uncertainty exists about customer acceptance, revenue should not be recognized until acceptance occurs. FN22 Customer acceptance provisions may be included in a contract, among other reasons, to enforce a customer's rights to (1) test the delivered product, (2) require the seller to perform additional services subsequent to delivery of an initial product or performance of an initial service (e. g., a seller is required to install or activate delivered equipment), or (3) identify other work necessary to be done before accepting the product. The staff presumes that such contractual customer acceptance provisions are substantive, bargained-for terms of an arrangement. Accordingly, when such contractual customer acceptance provisions exist, the staff generally believes that the seller should not recognize revenue until customer acceptance occurs or the acceptance provisions lapse. FN22 FASB ASC paragraph 985-605-25-21. Also, Concepts Statement 5, paragraph 83(b) states \"revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.\" If an arrangement expressly requires customer acceptance, the staff generally believes that customer acceptance should occur before the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, especially when the seller is obligated to perform additional steps.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c948a673-3f47-4588-ac28-b4759a825136", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "After delivery of a product or performance of a service, if uncertainty exists about customer acceptance, revenue should not be recognized until acceptance occurs. — FN22 FASB ASC paragraph 985-605-25-21", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-203f-7169-9f8b-dfe686e8d0b7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.78, "x": 0.11, "y": 0.86 }, "kind": "source-note", "text": "59-63 Footnotes", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d73fb02f-4712-4fce-ad01-ebc9397c9683", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }