Get Ahead of Your Next Audit by Implementing ASC 606 Revenue Recognition Standards

Time is running out for any remaining companies to implement the latest ASC 606 revenue recognition standard. With calendar 2020 year-end audits either already in motion or soon to be scheduled, any private company that has not yet adopted the new standard needs to make ASC 606 compliance a top priority. 

If you haven’t already, now is the time to implement the new standard and prepare for your next external audit. 

What does ASC 606 mean for companies?

In many ways, ASC 606 is a welcome development for finance companies. Working together, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have created a single model to follow for revenue recognition. Looking ahead, ASC 606 is aimed at removing inconsistencies that finance and accounting teams often encounter when managing revenue recognition demands. From that perspective, ASC 606 could easily simplify and streamline reporting requirements over the long run, but making the initial transition could be challenging.

There are several aspects to ASC 606 that companies need to consider as they implement the new standard:

  • The timing of revenue recognition has changed to align with the moment that control of a good or service is transferred to the customer. 
  • Recognition of certain associated costs is also impacted. Direct costs and cost of contract acquisition such as commissions could be significantly impacted by ASC 606. SAAS companies need to be particularly mindful of these changes.
  • The reach of the new standard extends far beyond the Office of the CFO. While the new standard certainly impacts systems, controls and policies within finance, it doesn’t stop there. Sales, FP&A, legal and HR among others will also feel the impact of the new standard across the enterprise.
  • ASC 606 significantly increases the number of disclosures that companies need to include. Those disclosures could include disaggregated revenue, reconciliation of contract balances, quantification of performance obligations, disclosure of significant assumptions and quantification of costs to complete a contract.
  • Properly applying the ASC 606 standard requires a great deal more subjectivity than previous revenue recognition requirements. This means that extra diligence and an expert eye are needed to ensure complete compliance.

How to adopt ASC 606 revenue recognition standard

Finance leaders have two options to consider when adopting ASC 606. First, they can choose to take the modified retrospective approach, which would require them to adopt ASC 606 on the effective date without needing to adjust comparatives. 

The other method is a full retrospective adoption. This approach involves restating comparative periods after the fact and in alignment with the first day of the earliest presented period.

Whichever method a company chooses, it’s important to remember that successful ASC 606 adoption comes down to getting the right reporting information to the right parties at the right time.

Take advantage of CFGI’s 3-phase approach

CFGI’s dedicated team of revenue recognition experts has worked hard to create a dependable, three-phase process to successfully implement ASC 606.

Phase 1: Scoping memo and sample approach 

Our team assesses your revenue streams as well as your current accounting and reporting practices. CFGI then lays out a project road map to meet your compliance deadline as well as coordinates with your external auditor.

Phase 2: Technical assessment

CFGI thoroughly reviews customer contracts, commissions plans, policies and business practices to develop the best rules-based framework for your company. Our revenue recognition experts also assess the impact of ASC 606 on other areas beyond the finance function.

Phase 3: Financial reporting and disclosures

A CFGI team oversees the preparation of financial statements, disclosures and other reporting needs. CFGI’s guidance ensures that every requirement is met and that your company is ready to face a year-end audit.

Don’t hold off on implementing ASC 606 any longer. Reach out to CFGI’s revenue recognition experts to find out the best way to make the transition and prepare for your next external audit.