Are you keeping tabs on ASC 606? Revenue is the key indicator of your company’s financial performance and health. The accounting rules you must follow to recognize and report on that revenue are changing!
ASC 606 creates a major shift in how your business handles its accounting—particularly if you have a subscription-based business that derives revenue from contracts with customers. What’s the big deal? For starters, the impact of the change extends beyond a mere tweak to your accounting methods. It necessitates changes to your tracking, processes, and internal controls. The purpose of this guide is to highlight the basics of ASC 606, what it means for your business, and the risks of not taking action.
Ready for ASC 606? New Contract Revenue Recognition Standards Are Here
When the Financial Accounting Standards Board (FASB) originally issued ASC 606, it was supposed to be effective in 2017. However, due to the magnitude of the change, the effective date has since been delayed until the start of 2018 for public companies, and the start of 2019 for private companies. Although you may think you have plenty of time, the reality is the contracts you are writing today that extend into the 2018/2019 adoption date must be accounted for under ASC 606. Thus, it’s essential to ensure revenue recognition processes are running smoothly, well in advance of the deadline.
INFOGRAPHIC: Are You Ready for ASC 606? SaaS businesses get compliant now!
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Don’t fall into the trap of underestimating the time required to implement changes to your financial systems and processes.
Whether you are seeking additional funding, planning an acquisition, or planning to go public, the new standard has the potential to reshape your revenues and valuation. Subscription-based businesses must take special care with ASC 606. The standard has broad ramifications based on how you structure your agreements with customers—the terms, bundling, discounting, and more. The new standard specifies that an entity transferring control of its service over time must recognize revenue when one of the following criteria is met, according to FASB:
- The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs.
- The entity’s performance creates or enhances an asset – for example, work in process – that the customer controls as the asset is created or enhanced.
- The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.
Did you know?
Sage Intacct’s Contract and Revenue Management is designed to make companies audit-ready, while delivering the continuous insights needed to make their financial future predictable? The software enables companies to simultaneously manage revenue using both the current and new accounting guidelines — allowing them to operate under current guidelines and the new standards, simultaneously. For joint Sage Intacct and Salesforce customers, Sage Intacct Contract and Revenue Management also enables companies to structure workflows to capture and edit contracts natively in Salesforce. There is no need to import contracts using additional integration software or by rekeying them into Sage Intacct — streamlining processes and eliminating potential errors.
Are you ready for ASC 606?
Contact CompuData today!