The Financial Accounting Standards Board’s new revenue recognition standard, ASC 606—the biggest accounting guidance change in recent history— has two main objectives. The first, and probably most important, is to eliminate industry-specific guidance in order to create more transparent and uniform reporting across all types of companies. In other words, to allow for a more generic, apples-to-apples comparison among companies and industries, no matter how diverse.
At the same time, the standard seeks to give companies more judgment in applying accounting guidance to manage their businesses.
As you can probably guess, getting all the countless types of companies and industries to conform to the same set of standards will have a wildly different effect on each one, not unlike every person trying to fit into a “one-size-fits-all” t-shirt or hat—a nice idea, but not very realistic. As a result, complying with ASC 606—which public companies already need to be doing, and private companies must do by the beginning of 2019—will affect you differently depending on which industry you work in.
Let’s look briefly at a few of them, starting with our very own industry, computer software.
According to PwC, “revenue recognition within the software industry has historically been highly complex with much industry-specific guidance.” Under ASC 606, software and its related services “is expected to be one of the areas most impacted by the new standards.”
“Determining how to allocate consideration among elements of an arrangement and when to recognize revenue can be extremely complex,” PwC says.
Although many retail companies “may initially assume that this standard will have minimal impact within the industry, there are several unexpected issues which may present challenges,” says Deloitte, “notably greater judgment in recognizing revenue and costs related to loyalty programs, gift cards,” rewards points and coupons. It may also change the timing of revenue recognition from current practice.
Similarly, ASC 606 “will likely present challenges for many companies in the travel, hospitality and leisure industry,” including customer loyalty programs, capitalization of costs to acquire customer contracts, and principle agency accounting, Deloitte says.
In health care, companies will be challenged by performance-based fees, contract combinations and modifications, taxes and disclosure, and many other items, according to Deloitte.
Those are just a few industries. In fact, just about every type of business will have its own unique problems and challenges in complying with ASC 606, including energy companies, communications and power utilities, construction and engineering firms, pharmaceuticals, media and entertainment companies, and financial services and banking, just to name a few.
As we mentioned, the idea behind the new standard is to create uniformity and enable better and more objective comparisons among the vastly different businesses and business models.
RevSym by SAP addresses the multitudinous revenue recognition and sales expense challenges posed by ASC 606 and IFRS 15 internationally. RevSym automates revenue recognition as well as accounting for commissions at the portfolio level or even at a deal-by-deal level. You can easily amortize the cost of sales or sales commissions for existing contracts, new contracts, contract renewals, and contract cancellations.
Like all SAP Sales Cloud products, RevSym is built to be managed and configured by the business user, no matter the business. This is especially important when it comes to implementing 606, which can be so complex it can challenge the expertise of the most experienced accountant. Using an automated tool like RevSym helps your business remain compliant, while ensuring that all recognition tasks can be completed on time. And there’s no need for complicated coding – you configure policies to support your current and future needs. And because it’s cloud-based, it’s scalable, flexible, and upgradable.
Hundreds of modern finance organizations already use RevSym to automate the process of consolidating data from multiple systems to deliver real-time GAAP reporting, increasing their finance departments’ productivity and improving controls.