Public companies have been wrestling with the new Accounting Standards Codification Section 606 revenue recognition standard for the past year – now it’s time for private companies to get with the program!
ASC 606 is a more principles-based approach that tries to reduce the complexity apparent in today’s revenue recognition guidance. It could potentially change the way your company records revenue and structures deals and contracts.
ASC 606 is effective for annual reporting periods beginning after December 15, 2018 for non-public companies. Those who don’t adopt the new rules will not be in compliance with Generally Accepted Accounting Principles (GAAP), and could therefore jeopardize relationships with their bank, investors and other critical stakeholders who rely on financial statements.
The move to the new standard
The new revenue recognition standard was developed in an attempt to condense numerous regulations and interpretations, and to improve the way companies account for revenue and deferred revenue. While having a single standard is beneficial in many ways, accounting for revenue has now become much more complex for many large companies.
First issued by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) in May 2014, the new revenue recognition standard ASC 606, Revenue from Contracts with Customers, has not been a smooth transition process for many businesses.
ASC 606 outlines five key steps, with detailed requirements within each step:
- Identify the contract
- Identify performance objectives
- Determine the transaction price
- Allocate the transaction price
- Recognize revenue
Don’t be fooled by how simple the five steps may appear – the devil is in the details!
Why should you start now?
2019 is right around the corner! Addressing 606 can be a time-consuming endeavor for many companies, big and small, and in all industries. It may require time and effort from both internal and external resources.
As a business leader, it is your responsibility and proper corporate governance to implement the new revenue recognition standard at your company – but we are here to help. Contact me or another member of Kaufman Rossin’s assurance services team to learn more about the new standard and what your company needs to do to comply by the deadline.