If you want to get your business ready for current and new revenue recognition requirements, then start thinking about Revenue recognition ASC 606 compliance today. When ASC 606 was initially issued by the Financial Accounting Standards Board (FASB), it was expected to be effective in 2017. But, the magnitude of change has forced a delay in its effective date. Private companies now have until the start of 2019 to ensure compliance to the standard.
While you may think that you have plenty of time to adopt measures to ensure compliance to the ASC 606 standard, the reality is that you won’t be ready in time for compliance if you don’t start implementing changes to your financial processes and systems today.
There is good chance of you entering into complex agreements and contracts with customers if you have a subscription-based business. Capturing and reporting on this information is required by the ASC 606 standard and this is something your existing accounting system may not be able to do. So, starting today, you need identify and fix critical data and accounting gaps.
Time is short and you have a lot to do. Rather than seeing this as a challenge, consider it as an opportunity to identify weaknesses in your processes and contracts. Your aim should be minimizing the number of contract exceptions and streamlining your processes to lower the amount of handling received by each contract. If you’re looking to achieve Revenue recognition ASC 606 compliance, then the following tips can be helpful.
Identify Your Contracts
An important step in achieving ASC 606 compliance is identifying your contracts. The revenue recognition standard requires companies to account for a contract with customer within their scope only after the required criteria is met which includes approval of the contract and commitment to perform respective obligations by the parties involved, identification of each party’s right regarding goods or services to transferred by the company, the identification of these goods or services payment terms by the company, contract having commercial substance, and collection of all the consideration to which the company is entitled in exchange for the goods or services to be transferred.
Build an Internal Team
In addition to identifying your contract, another thing you need to do to ensure compliance to new revenue recognition standard is building an internal team. This team will be responsible for initial assessment of the new standard’s impact, its communication, and the development of the strategy to deal with the impact.
Uniformity in handling of performance obligations and renewals is crucial to ensure compliance with the new revenue recognition standard. Also, by automating the accounting system and ensuring contract intelligence, you will be able to flag revenue recognition terms, separate them if required, and allocate accordingly.
Once you’ve done the above, develop a plan and roadmap for Revenue recognition ASC 606 compliance. Also, consider using technology for this purpose, technology that CallidusCloud RevSym can provide you with.