ASC 606 and ASC 340-40, now in effect for all annual reporting periods (including interim reporting periods within those periods) for public companies beginning after Dec. 15, 2017, will impact not just revenue recognition, but also how the cost of sales is capitalized and amortized.
ASC 606 and Sales Incentive Compensation
Recognizing revenue can be difficult in B2B sales because there are so many different things that come into play in a typical customer lifecycle: rebates, warranties, shipping, subscription models, product and service bundles, termination fees, etc.
For the sales organization, the passing of ASC 606 means having to align all sales incentives—including commission and bonuses—with the new revenue recognition requirements, which means the way you incentivize your sales reps may need some tweaking. For example, after identifying the contract, ASC 606 stipulates that each performance obligation must be grouped into distinct pieces or bundles, according to if a good or service is dependent on, or highly interrelated with, other items promised in the contract.
This will impact how finance capitalizes and amortizes commissions and other costs of sales.
Know What You’re Doing Before You Do It
The best way to handle the new ASC 606 and ASC 340-40 requirements is to be informed and to have the right technology behind you, helping you to comply, before implementing your new policies.
There’s software out there designed specifically to make the revenue recognition process much easier.
Don’t miss our ASC 606 and ASC 340-40 webinar on May 9, in which Matt Svetich of Effectus Group will discuss what to consider in preparing for commission accounting changes, methods for estimating commission amortization, and how to support audit requirements in the age of ASC 606.
Matt is a Director in Effectus Group’s technical accounting and IPO practice and has extensive experience in ASC 606 revenue recognition implementations. Matt has over 20 years of experience in accounting, including 10 years at KPMG.