The Securities and Exchange Commission has been taking a close look at how Amazon.com has been adhering to the new revenue recognition standard, particularly with regard to its Amazon Prime revenue, and Amazon has been pushing back in response to the SEC’s comment letters.

Amazon declined to provide the SEC with information about the revenue it generates from its Prime members, who receive free two-day shipping and other benefits. That position echoes one that Google’s parent company Alphabet took, when earlier this year it stonewalled the SEC on its request to break out YouTube revenue under the new rules, according to Intelligize, an SEC risk and compliance analytics firm that has been analyzing the SEC’s comment letters on the new revenue recognition standard.

“In an August letter, the SEC asked Amazon about four issues, including the percentage of Amazon’s net sales that come from Amazon Prime members,” said Marc Butler, a director at Intelligize, who published a blog post on the topic Thursday. “Amazon refused to answer the question, downplaying Prime as ‘only one element’ of its offerings, and claiming that singling out Prime sales is not useful in analyzing the nature of its net sales. It will be interesting to see whether Amazon’s argument emboldens more tech companies to shield revenue information from disclosure, and how the SEC will react if that occurs.”

William Thompson, an accounting branch chief at the SEC’s Office of Consumer Products, asked Amazon about its shipments to Prime customers. “We note from statements in your Current Report on Form 8-K filed on April 18, 2018 that you have exceeded 100 million paid Prime members globally and that you shipped more than five billion items in 2017 with Prime worldwide,” he wrote. “In future periodic reports, please disclose the percentage of net sales attributable to sales to Prime members versus sales to non-Prime members.”

In response, Shelley Reynolds, a vice president and worldwide controller at Amazon, took issue with the question. “We respectfully do not believe that net sales attributable to Prime members versus sales to non-Prime members is meaningful or useful information,” she wrote. “As an example, slower growth or a decline in net sales, including those attributable to Prime members, may reflect increased customer purchases of products from third-party sellers, since the same product sold through our website for the same price can produce different margins (and percent of net sales results) depending on whether it is sold by Amazon or by a third-party seller. Prime membership is primarily a service designed to enhance overall customer experience and convenience, promote customer loyalty, and provide customers access to the many products and services that are available through our websites, mobile apps, Alexa, and our physical stores, which are all part of our omnichannel distribution system. As with Alexa, our Kindle e-readers, and other offerings and services, Prime is only one element that supports our focus on selling a wide range of products and services. As a result, whether sales are associated with Prime membership does not reflect on or provide useful information about the nature of our net sales and does not reflect how management views the business.”

Intelligize finds the exchange telling for Amazon as well as other companies that are trying to comply with the new revenue recognition standard, also known as ASC 606. “Amazon is an issuer that we were keeping an eye on as it relates to 606,” said Butler. “When we saw these comment letters come through, Amazon was recognizing different revenue, Amazon Web Services and third-party sellers that were active on, the SEC seemed to be interested in revenue from Prime members. The bigger picture may not be unique to Amazon itself. The commission seems to be pushing for greater transparency. The SEC questions hinged on when services were physically recognized by Amazon, and which arrangements at a point in time, and which were recognized over certain periods of time.”

Butler noted that the SEC was asking for more insight into Amazon’s revenue streams, but Amazon pushed back, even though it’s at the core of their financial operations. Other questions from the SEC involved revenue from Amazon Web Services, sales from digital media content and third-party seller services. Butler pointed out that there appeared to be at least two comment letters from the SEC to Amazon about such issues.

The second comment letter came in response to how Amazon answered a question about whether Amazon recognizes revenue from Amazon Web Services, advertising services and its third-party seller services at a single point in time or on an ongoing basis as the services are rendered. Amazon answered the question, but the SEC contended “it continues to be unclear when revenue related to these services is recognized.”

“The commission stated they are still not clear,” said Butler. “Most issuers would resolve to avoid a second round of comments. … There will be a follow-on filing from Amazon, and we may see the SEC taking another poke at it.”

Amazon did not immediately respond to a request for comment from Accounting Today. Butler is watching the SEC question other companies about their revenue streams and seeing some trends emerge.

“This is just one example of an SEC comment letter,” he said, adding that a second wave of comment letters should be coming in the next month from the SEC to other public companies that have begun using the new rev rec standard.

“They don’t intend to beat up on issuers, but they are pushing issuers to be more descriptive,” said Butler. “With these comments, we are starting to see two things: Issuers are trying to control the narrative because of the complexity of the rev rec requirements, but on the other hand we are starting to see some issuers being caught off guard at the depth of the SEC’s financial reporting requirements.”