The Financial Accounting Standards Board (FASB) has issued a new Accounting Standards Update, ASC 606: Revenue from Contracts with Customers,that addresses revenue recognition under U.S. Generally Accepted Accounting Principles. The new rules are an attempt to standardize the revenue recognition process across different industries and geographic locations. The Standard was the result of a multi-year effort to develop uniform worldwide guidelines and produce a converged revenue recognition standard by the FASB and the International Accounting Standards Board (IASB).
ASC 606: Revenue from Contracts with Customers, like other standards BeachFleischman has helped clients implement, specifies how transactions and other events are to be recognized, measured, presented and disclosed in financial statements. What’s significant about this standard, among other things, is that it will replace over 200 specialized and/or industry-specific revenue recognition requirements under U.S. GAAP. The result will bring change to companies’ processes, systems and accounting practices.
Who does ASC 606 impact?
The revenue recognition standard affects all entities—public, private, and not-for-profit—that have contracts with customers, except for certain items.
Specific Industry “Frequently Asked Questions”
Timeline for Implementation of ASC 606 - Revenue Recognition
Public entities: Public entities are required to adopt the revenue recognition standards for reporting periods beginning after December 15, 2017, and interim and annual reporting periods thereafter (which equates to January 1, 2018 for public entities with a December 31 year-end). Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
All other entities: Private and not-for-profit entities are required to apply the revenue recognition standard for annual reporting periods beginning on or after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. However, preparation for implementation must begin now.
Revenue Recognition Implementation Process
Below is a timeframe for implementation for private companies.
Create Implementation Team
- Include owners, accounting, project management, IT.
- Timeframe - NOW
Assess Current Environment
- Identify and evaluate all significant contracts (Create pools)
- Apply 5 Steps to a sample of each contract pool
- Evaluate findings
- Evaluate software
- Timeframe – 1st & 2nd Quarter 2018
Develop Internal Controls and Policies
- Implementation/Adoption Controls
- Accounting controls relating to 5 Steps
- Controls to identify pre-contract costs
- Timeframe – 2nd & 3rd Quarter 2018
Educate and Rollout
- Timeframe – 3rd & 4th Quarter 2018
- Full Retrospective
- Retrospective with cumulative adjustment
- Timeframe – 1st Quarter 2019
Monitor, Adjust and Adapt
- Monitor compliance of controls
- Adjust controls as needed
- Adapt to changes
- Timeframe - Ongoing
BeachFleischman has industry experts who are available to consult with you and assist your company with designing a plan to implement the new standard.