All businesses require financial accounting. Accounting ensures that all business expenses and revenue are properly recorded to accurately present the profit, loss, and margins of a business. The two existing boards that govern financial standards (FASB and IASB) collaborated in 2014 to present a consolidated standard, which can be used internationally to produce effective revenue recognition.
Here, we describe what the new, ASC 606/IFRS-15 standard represents and why it is here to rule, especially in 2018, when all companies must implement its use in their financial accounting practices.
What is ASC 606/IFRS 15?
Most companies in the United States used the Generally Accepted Accounting Principles (GAAP), which often used different principles in different industries. This created a problem, when businesses had an international nature, or would need to present their financial information to international investors. This standard describes all the procedures, which are required for collecting revenues from the customers.
The FASB (Federal Accounting Standards Board) has described the use of this standard as an improvement over the previously public-company employed Generally Accepted Accounting Practices (GAAP) in the US. Public companies began applying the new standard in periods beginning after December 15, 2017, and private companies will need to do the same for periods beginning after December 15, 2018.
The new ASC 606 standard improves this situation, as any company looking to get registered to the stock market, now needs to adopt this standard. It is designed to apply across industries such as software and other contract-based situations.
Why ASC 606 will stay?
There are several reasons why ASC 606/IFRS 15 exists. Here, we describe some excellent benefits for companies and help them create globally standardized financial accounting practices:
ASC 606/IFRS 15 is a revenue recognition practice, which offers global compliance. This allows your business to have an international appeal, where your business information can always be presented in an ideal form to international investors. If you are an investor, global compliance offers you the benefit of comparing across industries and geographies, and selecting the best company to make your own investments.
Make Finance Strategic
The need to revisit revenue recognition practices provides an opportunity for finance teams to strategize with their leadership to ensure financial disclosures accurately represent the strength of their business. In some cases, the new standard may allow for recognition of more contract revenue upfront to boost toplines. Other arrangements will allow the amortization of contract expenses like commissions under the new standard, increasing the bottom lines. With the new standard, revenue teams can spend more time on strategic analysis and less time interpreting revenue arrangements under loose standards.
Better Controls for contracts and finance
The ASC 606/IFRS 15 standard is based specifically on contracts with the customer rather than other items like invoices. This will put pressure on sales teams to standardize their contract offerings and reduce one-off exceptions and special arrangements with customers.. Sales and legal departments of companies must now collaborate, and ensure that they prepare contracts that best represent the business and its revenue goals
CallidusCloud makes it easier for businesses to switch to ASC 606. RevSym by CallidusCloud is perfect for automating revenue recognition tasks and creating an ideal working platform for your finance team!