Companies in the United States and abroad are exhaustively re-designing their revenue recognition policies and processes to ensure ASC 606/IFRS 15 (internationally) implementation. Jointly developed by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), the new revenue recognition standard will replace almost all revenue recognition requirements of IFRS and U.S. GAAP.
A comprehensive revenue recognition standard, ASC 606/IFRS 15 requires companies—especially those selling software-as-a-Service, to be extremely careful about how they revise their processes and policies for the new standard. The implementation of ASC 606 is a five-step process:
- Identification of customer contract
- Identification of performance obligations
- Determining transaction price
- Allocating transaction price
- Recognizing Revenue
Implementing ASC 606
ASC 606 implementation is no easy task and significant time and knowledge is required to implement it. Before anything else, companies need to make a decision—implement the new revenue standard internally or outsource its implementation. This decision cannot be based on personal preference or gut feeling. Instead, it needs to be influenced by factors such as the company’s size, the budget available, the internal resources available, the complexity of the task, the experience of key personnel, and the time before the targeted implementation date. Additionally, you need to consider the following things before implementing ASC 606.
The Implementation Timeline
The implementation process of ASC 606 can range from a few weeks to several months depending on the project’s complexity and size. The project timeline will be driven by transition methods. Another factor that significantly impacts the process’ length is the initial organization of contract and revenue data.
The ability to trace revenue to its corresponding contract(s) with ease makes the implementation easier since ASC 606 is model driven by contract. Often, companies track revenue using historical data pertaining to customer or product line. A time-consuming process, this increases the length of the ASC 606 implementation process. Even if your company isn’t required to implement ASC 606, you will be asked to present past financial periods on financial statements according to this new revenue recognition standard. For this reason, you are advised to start as soon as possible with the implementation of ASC 606 as the process will required significant effort.
The Implementation Cost
If you choose to implement ASC 606 internally, then the cost of implementation will depend on your current resources and capacity. For existing workforce, implementation can be both difficult and time consuming and of course, there is the opportunity cost to pay. This is the reason outsourcing implementation to a company with the required technology, technical expertise, and personnel is recommended, especially when you don’t have the required resources available internally.
The cost of hiring these companies depends on their level of experience and the services provided. The good thing is that most of them will give your estimate of how much the implementation will cost you. Using this information, you can determine which way of implementation is more financially feasible. If you’re thinking about ASC 606 implementation, then CallidusCloud is a company that can help you!