Is your business making changes to meet the updated FASB and IASB standards for recognizing contract revenue? The new standards go into effect at the end of the year, so it’s never too soon to be prepared.
The proposed changes were approved in 2014 and require private companies to switch to the industry-neutral revenue recognition model for annual reporting periods after December 15 of 2018. If yours is a calendar-year company, your January 2019 year-end report will need to be written in compliance with the new standards.
These regulations apply to various industries, and you may not yet be sure how they will affect yours. Nevertheless, you’ll be interested to know how you can remain compliant as you move forward. We’d like to provide a few pointers:
The New Standards
The contracts you have with customers, now or in the future, will be affected by the revised standards. This may be a significant departure from the way you have been operating.
The new standards call for a 5 step process for revenue recognition:
- Identify contract(s) with a customer
- Identify performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in a contract
- Recognize the revenue when (or as) the entity satisfies a performance obligation
The new standard is an attempt to streamline wide-ranging existing standards and do away with 200+ industry-specific or specialized standards. The effect will necessarily be different for different industries. And although the changes are complex, once they are adopted, it is hoped that businesses will be better able to track and manage the processes utilized for the recognition of their revenue.
Further details can be found in this
Making the Change
- Contract Reviews (current and ongoing): 78%
- Developing and Implementing New Accounting Policies: 76%
- Documentation of Conversion Process and Associated Auditability: 76%
- Quantification of Adjustments: 72%
- Project Management: 71%
- Revisions to Systems and Associated Controls: 68%
- Identification of Accounting Differences Across the Organization: 64%
However, there is a bright side: making the transition can help growing businesses to transform their financial management processes and key into technology solutions that are automated, flexible, and audit-supporting.
Many finance-industry leaders agree that implementing a first-rate accounting and financial management software solution can be an important contributor to an organization’s success. When processes are still carried out using spreadsheets or an entry-level desktop software program requiring custom scripting, it will be more difficult for your team to meet the new standards and remain compliant.
Can your system do the following:
- Handle revenue allocation/reallocation and expense amortization through configurable templates
- Provide flexibility to select the allocation method based on the contract’s type of performance obligation.
- Allow you to configure new types of allocation as your business, your contracts, and accounting regulations continue to evolve.
A Better Solution
Sage Intacct Contract Revenue Management is the first automated solution designed to deal with the complexities of ASC 606 and IFRS 15. It can help businesses make the transition to the new standards confident that they can manage their data, reporting, and compliance with transparency, ease, and speed.
The cloud-based software makes use of Sage Intacct’s multi-dimensionality, multi-entity, and multi-book functionality in supporting multiple sets of business rules from a single source of data. Critically, it offers duel treatment of your data, incorporating old and new recognition methods so you’ll be able to see your revenue based on existing (ASC 605) and upcoming (ASC 606) rules. The software will help your team with invoicing and forecasting, and will also guide you as you sign multi-year deals with current and future contract partners.