With the arrival of the new ASC standards, it is important to understand the comparison between new revenue recognition vs old standards. The Federal Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) used to have their individual standards before they collaborated to replace different practices in the world of financial revenue management. Here, we share some major differences that separate the new recognition standards from the older, desolate options:
1. The Different Recognition Base
When we perform a comparison of new revenue recognition vs old methods from the FASB and the IASB, we find that the base for performing revenue recognition has been changed. The individual systems from both boards centered on their ability to provide financial accounting support and allowing organizations to create data which can then be employed for decision-making and healthy financial practices.
On the other hand, new recognition model like the ASC 606 is fully based on creating a completely defined contract between a customer and a vendor that explains the delivery of services and products. All obligations are handled within the contract details which provide the information for performing the revenue recognition for the vendor through the following five steps:
- Contract identification
- Performance obligations identification
- Transaction price details
- Transaction price matched to performance obligations
- Revenue recognition based on satisfied performance obligations
2. Framework Differences
Another key difference that was already present between the FASB and the IASB was about the presence of different frameworks. The Generally Accepted Accounting Principles (GAAP) supported by the FASB already have over 180 different papers that describe the standards for various industries. On the other hand, the IASB also had standards like IFRIC 13, IAAS 11 and IAS 18 for various contract revenues.
With the application of the new standards of ASC 606 and a similar IFRS 15, the focus has shifted for defining a detailed framework that allows for compliant revenue recognition practices as produced by the Joint Transition Resource Group (TRG) for revenue recognition. This framework is currently in practice as a measure of providing benefits to accountants in the form of conditions that provide all information within the contract document for revenue recognition.
3. Change of Accounting Approach
The accounting approach has changed with the application of the new standards. The previous GAAP based accounting allows for recognizing revenue at two different positions, when it is earned as well as when it is realized. This means that organizations realized their revenue when they received any payment. If a consideration was available in the future, it was in a realizable form too.
However, with the arrival of new standards, we find that ASC 606 and IFRS 15 describe that revenue must be recognized in accounting as an amount which reflects the consideration that a business expects. This occurs in exchange for the goods and services rendered according to the contract terms.
A comparison of new revenue recognition vs old will help you in improving your current accounting practices. Automating your revenue recognition is an excellent choice in this regard, as CallidusCloud offers a solution that you can use to automate recognition based on the ASC 606/IFRS 15 principles.
Webinar: Accounting for Commissions and Other Contract Costs under ASC 606
In this webinar, Matt Svetich of Effectus Group will discuss what to consider when preparing for the commission accounting changes under ASC 606 and ASC 340-40.
Watch Now >>