If you’re a public company most likely you’re well on your way to meeting the requirements for the new revenue recognition standards ASC 606 and IFRS 15. Many private companies, however, have yet to start assessing the impact these standards will have on them. Preparing for the implementation of these standards is no easy feat, so now’s the time to begin.
To get started, here is some basic information about ASC 606 and IFRS 15 with pointers to additional resources.
What are ASC Topic 606 and IFRS 15?
The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly issued a converged standard on revenue recognition from contracts with customers. Previously, FASB and IASB had different requirements, making it difficult to compare financial statements globally or even across industries or companies within the same industry. This new standard will bring clarity to how companies recognize revenue for goods and services. In a nutshell, this happens when a good or service is transferred to the client and the client has received control of that good or service.
ASC Topic 606 and IFRS 15 Deadlines
All companies that enter into contracts with customers to transfer goods or services must meet the requirements for ASC 606 and IFRS 15. Public companies have until December 15, 2017 to meet IFRS 15 requirements and 1/1/18 to meet ASC 606 requirements. Private companies have until January 1, 2018 to meet IFRS 15 and December 15, 2018 to meet ASC 606 requirements.
How will these standards impact me?
Implementing ASC 606 and IFRS 15 has broad ramifications and will impact your people, processes and systems. Everyone across your organization that interacts with client contracts could be impacted: business development, project management, marketing, and IT. It’s these broader implications and unknowns that have many companies concerned. In fact, in a 2016 Revenue Recognition Survey over half the companies surveyed believed they would need system changes to their financial accounting/ERP systems to implement the new standard.
What is the 5 Step Model for Recognizing Revenue?
In developing ASC 606, the Financial Accounting Standard’s Board (FASB) and the International Accounting Standards Board (IASB) developed the 5 Step Model for Revenue Recognition to provide a framework for companies to follow. This 5 Step Model is intended to help drive consistency in financial reporting, improve comparative analysis and to simplify the preparation of financial statements.
How do I know if my system will support ASC 606 and IFRS 15?
- Does your solution have the flexibility to allocate revenue to multiple performance obligations?
- Can it automate and manage revenue recognition processes?
- Can you easily make adjustments to existing contracts?
- Can you conduct detailed financial analysis including billing, revenue recognition and forecasting?
Many companies turn to Deltek to help them prepare for and meet the new revenue recognition standards. Deltek systems have been designed to meet these and other compliance standards. Since the new standard is very complex so it’s also important for you to work with your tax advisor/auditors to determine whether you are compliant and what changes you may need to make to become compliant.
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