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Revenue recognition standard ASC 606

Adopting the New Revenue Recognition Standard ASC 606 and IFRS 15

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) decided to converge their different standards to create a solution, which is ideally presented as a universal system. They came up with the revenue recognition standard ASC 606 and IFRS 15 (outside the U.S.) as a result. This is a standard that developed from the efforts of the Transition Resource Group (TRG) that came up with the relevant standard settings that would be acceptable globally.

Revenue from Contracts

The efforts of the combined TRG resulted in guidance about three different standards. The ASC 606/IFRS15 revenue recognition standard was formulated as one of them, to standardize the revenue process.

Important Principles

There are several important principles that define the guidance which is provided by the revenue recognition standard ASC 606/IFRS15. The first is the transfer of control which is possible when the revenue is recognized by the entities that are responsible and is identified by giving the control of the product or service to the customer.

The second point is to estimate the variables that may be present during a transaction, such as concessions, milestones and bonuses. The standard maintains that there must not be a reversal of revenue collection, as long as there is uncertainty about its legitimacy.

Another important concept is the principle of collectivity. The revenue recognition standard ASC 606/IFRS15 describes that all collections must occur in accordance with the substantial payment systems established in accordance with the guidelines of the accepted standard. It describes the that the entity must present their offer to the customer with the customer having the ability to expect that they will receive the goods if they follow the customary business practices.

Licenses are also required while multiple element arrangements are also possible, if they follow the ASC 605 standard. However, all goods and services must be distinct in their nature to be accounted separately in terms of delivering a performance obligation. The transaction price may also depend on the conditions of the delivery that are mentioned through the contingency described in the documentation between the entity and the customer.

Free Report – Making the Move to ASC 606: What to Know

The Scope of ASC 606/IFRS 15

The scope of revenue recognition standard ASC 606/IFRS15 includes all types of customer contracts, only excluding the ones that are defined by the ASC 944 standard, which specifically describes the revenue recording of insurance services. The FASB is consistently explaining the scope of ASC 606, defining situations in which it can provide the required direction.

The adoption is already occurring as the standard allows entities to understand that all goods or services transfers must be shown in a documentation form, which clearly depicts the customers receiving them in exchange for an amount that works as the intended compensation.

The adoption of the standard is an evolving practice, where entities must identify their contracts, define the performance obligations in them, set the transaction price/compensation, connect the price to the defined performance obligations and then recognize the generation of the revenue when the obligations are satisfied.

If you want to learn more and implement the ASC 606/IFRS15 revenue recognition standard, visit CallidusCloud RevSym and learn more about software tools that help you follow the ideal financial practices!

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Making the Move to ASC 606: What to Know

Learn the three steps you need to take now to comply on time without losing your sanity:

  • Accounting Assessment
  • Data and System Assessment
  • Operational Assessment

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