Changes to accounting standards have a way of turning everyone, at least temporarily, into a flock of Chicken Littles. While the recent tweaks to revenue recognition in ASC 606 certainly warrant your attention, we are here to tell you that the sky isn’t actually falling, the sun will rise another day, and you’ll get through these changes unscathed if you follow just a few simple guidelines.
In fact, although you can consult the Big 4’s guidance if you have well-rested eyes and hundreds of hours to spare, you can also download Embark’s own ASC 606 guide and save yourself significant eye strain and time. We promise it’s concise, insightful, and just the thing you need to navigate the changes in revenue recognition and get back to what you do best. In the meantime, here are a few tips to help you make sense of these changes.
Who Is Impacted the Most?
Although revenue might have a uniform definition, the associated, impacted industries are in no way uniform. While industries such as asset management, hospitality, manufacturing and retail will certainly be affected, just wait for the new lease standards in ASC 842.
Instead, with ASC 606, a wide range of industries including everything from oil & gas, telecom and healthcare to construction, tech, defense and utilities will receive the most impact. However, there is no need to panic if you happen to be in one of these industries. Although time isn’t exactly on your side, you still have the opportunity to make the needed changes.
Speaking of Time
Since we’re on the subject, the time to start preparing for the mandated changes has really come and gone. That isn't to say that, again like Chicken Little, the sky is about to fall from orbit and onto your office if you are running behind. However, if it hasn't happened already, you'll soon start receiving pressure from your external auditors on the implementation progress. Keep in mind that full disclosure of ASC 606, in accordance with your chosen adoption methodology – either full or modified retrospective – goes into effect in February 2019. Between now and then, you should take heed of certain remaining deadlines.
Also, new or revised controls need to be operating effectively throughout 2018 to maximize control reliance from your external auditors. Chances are, you already pay your auditors more than enough and don’t need to further fill their wallets with funds that could go toward system upgrades, training or any other number of useful places.
The five-step model will guide the implementation of the new revenue recognition standards and support the core principle:
- Identify contract(s) with customer
- Identify performance obligations
- Determine the transaction price
- Allocate price to performance obligations
- Recognize revenue with performance
Although no two organizations and situations are exactly alike, this five-step model is applicable to all businesses, no matter the industry. In other words, these five steps apply to your company and are important for proper integration into your systems and procedures.
Of course, the new revenue recognition standards in ASC 606 are much more complex than these basic tips. However, those complexities don’t mean you need to invest countless hours into the intricacies of the new standards. Instead, Embark’s ASC 606 guidelines are reader-friendly, insightful, and ready to be downloaded, and they will get you on your way to ASC 606 compliance.