Like many accounting and financial technology professionals, I am busy getting up to speed on best implementation practices for ASC 606, Revenue from Contracts with Customers. ASC 606 takes full effect for both public and private companies within the next several years, and applying the new guidance won’t easily happen without adequate planning and effort. Here are highlights to consider thus far.
First, adoption will not be trivial: ASC 606 replaces scores of individual provisions in existing GAAP, and the cost of delaying implementation or trying to correct mistakes later could get scary. Start now, identify crucial differences between existing GAAP and the new guidance, designate an implementation champion, develop a project plan and educate key stakeholders.
The AICPA has numerous implementation tools available. Most were built for the largest organizations but can be adapted for SMBs. In addition, 16 industry-specific task forces for interpreting and applying ASC 606 have been established. If possible, tap into the resources available from your industry’s task force.
Consider IT changes needed to accommodate the new standard. Fortunately, many software publishers are working night and day to help customers get the back office financial technology ready, but QuickBooks isn’t among them. Intacct led software publishers by releasing the first automated solution for ASC 606 on May 10, 2017.
While ASC 606, Revenue from Contracts with Customers, allows retrospective adoption, an entity can also choose to recognize the cumulative effect of the new standard on existing contracts on day one of the effective date by adjusting the opening balance of retained earnings. While either method has merits, wouldn’t it be easier to take a multi-book approach by accounting for contracts under both the old and the new guidance now and through the transition year?
Break down your implementation plan into the following three phases:
Examine crucial policies or agreements. A sales commission policy may need revisions to synch up with changes in the company’s timing of revenue recognition. Debt covenants may require examination to avoid technical defaults due to changes in current asset and liability balances. And, the tax department will have to consider the impact ASC 606 will have on book and tax differences.
What tools must change for proper revenue recognitions? Do you need new software or new spreadsheets (gasp!) for recording revenue and expenses?
Work with the Audit Committee on implementation consequences, including changes in revenue recognition policies, industry-specific issues and potential restatements.
A successful implementation will require planning and work. To find out how BTerrell Group can assist in automating the new standard using a multi-book approach before and during the transition year, contact Brian Terrell for a free consultation.