It affects every function in your organization.
ASC 606 (new Revenue Recognition rules) is one of the largest changes to GAAP in nearly 20 years. Yet many organizations believe the change is trivial or that it affects only public companies. Nothing could be further from the truth.
The Revenue Recognition changes are broad and sweeping, and they impact just about every company.
The new standard goes well beyond just an accounting change. It is pervasive and requires changes across a company.
ASC 606 creates a single new revenue recognition model that applies across all industries. And with this new model comes the potential to change everything: business decisions, key performance metrics, compensation, debt covenants, tax payments, investor relations, IT systems/processes/controls, and the list goes on.
Is Your Business Ready for this Change?
Take our short five-question quiz below to find out.
What have you done to prepare for the new Revenue Recognition standard, ASC 606?
Answer these five questions to help gauge your readiness towards adoption.
- Have you educated your internal stakeholders on ASC 606?
- Have you performed a technical and operational assessment?
- Have you selected a transition method?
- Have you developed a detailed implementation plan?
- Have you secured both in-house and external resources?
If you answered “no” to any of the questions, we can help you become ready for the changes ahead.
The Domino Effects That Should Dominate Your Discussions.
You and your management team will need to consider how the new standard will impact your operational and performance metrics, company contracts, compensation plans, accounting policies, internal controls, and tax matters.
- You’ll want to determine how best to communicate the financial implications with your stakeholders (shareholders, creditors, investors). They will need to know how the new standard will impact your performance. In certain cases, renegotiating debt covenants and earn-out provisions may be required.
- You’ll need to conduct an internal management evaluation of your business. The rules can change the timing and amounts of revenue reported during a period. This means rethinking how you measure performance.
- That also means considering changes to compensation, commission plans, and bonuses. If metrics are changing, then so will sales and management compensation tied to those metrics.
- An assessment of IT needs and resources should be conducted. Are your current systems capable of collecting the data required under the new standards? If not, system upgrades may be needed. That in itself is an effort that takes careful consideration and lots of time.
- A review of all legal contracts impacted by the standard must be performed. This requires evaluating terms, assessing enforceability, identifying performance obligations, and considering transaction pricing.
It also will be vital to develop a plan that not only addresses the new standard, but also simplifies your transition to it.
Wipfli provides integrated Revenue Recognition services in accounting, advisory, technology, and risk and compliance. We can help with everything from an impact assessment to implementation and more. Contact us to learn how—and how far-reaching—the new standards will affect your current and ongoing business processes, tax compliance, compensation arrangements, and internal controls.